From 1 September 2025, a brand new company offence comes into power within the UK: failure to forestall fraud. Launched underneath the Financial Crime and Company Transparency Act 2023 (ECCTA), the offence is designed to sort out the company enablers of fraud by imposing legal legal responsibility on organisations that revenue, whether or not deliberately or not, from fraudulent conduct by staff, brokers, or different associates.
Whereas a lot of the dialog to this point has targeted on the implications for giant non-public sector companies, one sector stands out as each significantly weak and critically underprepared: native authorities.
With billions in taxpayer cash at stake, a historical past of procurement failures, and up to date high-profile scandals in council finance and governance, the dangers for native authorities and the businesses that work with them are acute. Complying with the brand new offence requires a concerted effort by each native authorities and the businesses that work carefully with them.
What’s the failure to forestall fraud offence?
From September, massive organisations shall be criminally liable if an individual related to them commits one in every of an inventory of specified fraud offences intending to learn the organisation or its purchasers. The one defence shall be proving the organisation had “affordable procedures” in place to forestall the fraud.
This builds on the mannequin used for failure to forestall bribery underneath the Bribery Act 2010 and failure to forestall tax evasion underneath the Legal Funds Act 2017, however applies it to a much wider vary of conduct.
Critically, “massive” for the needs of this offence means organisations assembly two of three thresholds: greater than 250 staff, over £36m turnover, or greater than £18m in complete property. Many native authorities and their suppliers shall be caught.
Why native authorities is within the firing line
The size of fraud and waste in native authorities is staggering. In response to the most recent Annual Fraud Indicator, councils in England alone lose an estimated £8.8 billion a yr to fraud. This quantity excluding advantages fraud. The overwhelming majority goes undetected. The only largest supply of loss? Procurement fraud.
Councils spend greater than £55 billion yearly on items and companies. That spending is commonly fragmented, poorly monitored, and ruled by outdated or inconsistent controls. It’s no shock that organised fraudsters, opportunistic contractors, and even insiders goal the general public purse.
And it’s not hypothetical. From ghost suppliers and inflated invoices to insider procurement offers and “cosy” relationships with distributors, native authorities fraud is nicely documented:
In Barnet, a council worker siphoned £2.6 million into a private account with out triggering an audit.
Thurrock gambled away tens of millions in speculative investments, prompting authorities intervention.
Liverpool Metropolis Council was rocked by allegations of bribery and intimidation over constructing contracts.
Birmingham and Croydon have declared efficient chapter following years of mismanagement and unauthorised spending.
In one of many extra disturbing current examples, an impartial investigation discovered that Thurrock’s counter-fraud group, often called NATIS, was doubtless arrange illegally and accused of misrepresentation and monetary mismanagement. A counter-fraud group, mismanaging fraud investigations. You couldn’t make it up.
These aren’t remoted incidents. They’re a part of a sample of poor governance, weak oversight, and a scarcity of accountability which has contaminated extra native authorities companies than we would care to confess.
The availability chain danger
It’s not simply councils underneath the microscope. Any organisation that provides companies to native authorities, from development companies to consultancy companies, tech distributors to social care suppliers, now faces potential legal legal responsibility if somebody of their enterprise commits fraud for the advantage of a council contract.
For procurement managers, finance administrators, or these managing tenders or public contracts, this raises severe questions:
- How do we all know our bids are correct?
- Can we confirm provider pricing and subcontractor credentials?
- Are we assured that invoices, time logs, and bills are reliable?
- Who’s checking for duplicate funds, false reporting, or inflated prices?
Fraud can creep in by shortcuts, cultural complacency, or over-familiarity with public officers. And underneath the brand new legislation, intent doesn’t matter. If somebody advantages the enterprise by fraud, and the enterprise can’t present it had affordable procedures to forestall it, the offence is made out.
Tradition, accountability, and compliance gaps
One of the vital damning options of the native authority compliance atmosphere is the absence of systemic oversight. There isn’t any central repository for monitoring fraud throughout councils. Many native authorities don’t preserve constant fraud information or carry out organisation-wide danger assessments.
This lack of oversight can put native authorities in a dangerous authorized place. The brand new offence expects that enormous organisations will:
- Determine fraud dangers particular to their operations
- Put proportionate controls in place
- Prepare employees often
- Monitor and assessment insurance policies in mild of evolving dangers
- Exhibit senior management dedication
What ought to councils and suppliers do to forestall fraud?
Whether or not you’re a neighborhood authority or an organization that works with one, there are severe and pressing steps that needs to be taken to forestall fraud and exhibit affordable procedures.
Conduct a fraud danger evaluation
Perceive the place fraud may occur in your operations. Procurement, contract administration, bills, third-party funds, and onboarding are all hotspots.
Implement proportionate procedures
These may embody twin authorisation, provider due diligence, whistleblowing channels, battle of curiosity declarations, bill matching, and doc verification.
Prepare your folks
These in procurement, finance, gross sales, and challenge supply should perceive how fraud works and what the results are.
Scrutinise your partnerships
Councils have to look carefully at suppliers. Suppliers want to know their publicity to native authority governance gaps.
Doc your efforts
The defence underneath the legislation depends upon exhibiting what you probably did to forestall fraud. Insurance policies, coaching logs, audit information, provider checks all matter.
Prepare your employees now on the right way to spot and cease fraud.
From 1 September 2025, a brand new company offence comes into power within the UK: failure to forestall fraud. Launched underneath the Financial Crime and Company Transparency Act 2023 (ECCTA), the offence is designed to sort out the company enablers of fraud by imposing legal legal responsibility on organisations that revenue, whether or not deliberately or not, from fraudulent conduct by staff, brokers, or different associates.
Whereas a lot of the dialog to this point has targeted on the implications for giant non-public sector companies, one sector stands out as each significantly weak and critically underprepared: native authorities.
With billions in taxpayer cash at stake, a historical past of procurement failures, and up to date high-profile scandals in council finance and governance, the dangers for native authorities and the businesses that work with them are acute. Complying with the brand new offence requires a concerted effort by each native authorities and the businesses that work carefully with them.
What’s the failure to forestall fraud offence?
From September, massive organisations shall be criminally liable if an individual related to them commits one in every of an inventory of specified fraud offences intending to learn the organisation or its purchasers. The one defence shall be proving the organisation had “affordable procedures” in place to forestall the fraud.
This builds on the mannequin used for failure to forestall bribery underneath the Bribery Act 2010 and failure to forestall tax evasion underneath the Legal Funds Act 2017, however applies it to a much wider vary of conduct.
Critically, “massive” for the needs of this offence means organisations assembly two of three thresholds: greater than 250 staff, over £36m turnover, or greater than £18m in complete property. Many native authorities and their suppliers shall be caught.
Why native authorities is within the firing line
The size of fraud and waste in native authorities is staggering. In response to the most recent Annual Fraud Indicator, councils in England alone lose an estimated £8.8 billion a yr to fraud. This quantity excluding advantages fraud. The overwhelming majority goes undetected. The only largest supply of loss? Procurement fraud.
Councils spend greater than £55 billion yearly on items and companies. That spending is commonly fragmented, poorly monitored, and ruled by outdated or inconsistent controls. It’s no shock that organised fraudsters, opportunistic contractors, and even insiders goal the general public purse.
And it’s not hypothetical. From ghost suppliers and inflated invoices to insider procurement offers and “cosy” relationships with distributors, native authorities fraud is nicely documented:
In Barnet, a council worker siphoned £2.6 million into a private account with out triggering an audit.
Thurrock gambled away tens of millions in speculative investments, prompting authorities intervention.
Liverpool Metropolis Council was rocked by allegations of bribery and intimidation over constructing contracts.
Birmingham and Croydon have declared efficient chapter following years of mismanagement and unauthorised spending.
In one of many extra disturbing current examples, an impartial investigation discovered that Thurrock’s counter-fraud group, often called NATIS, was doubtless arrange illegally and accused of misrepresentation and monetary mismanagement. A counter-fraud group, mismanaging fraud investigations. You couldn’t make it up.
These aren’t remoted incidents. They’re a part of a sample of poor governance, weak oversight, and a scarcity of accountability which has contaminated extra native authorities companies than we would care to confess.
The availability chain danger
It’s not simply councils underneath the microscope. Any organisation that provides companies to native authorities, from development companies to consultancy companies, tech distributors to social care suppliers, now faces potential legal legal responsibility if somebody of their enterprise commits fraud for the advantage of a council contract.
For procurement managers, finance administrators, or these managing tenders or public contracts, this raises severe questions:
- How do we all know our bids are correct?
- Can we confirm provider pricing and subcontractor credentials?
- Are we assured that invoices, time logs, and bills are reliable?
- Who’s checking for duplicate funds, false reporting, or inflated prices?
Fraud can creep in by shortcuts, cultural complacency, or over-familiarity with public officers. And underneath the brand new legislation, intent doesn’t matter. If somebody advantages the enterprise by fraud, and the enterprise can’t present it had affordable procedures to forestall it, the offence is made out.
Tradition, accountability, and compliance gaps
One of the vital damning options of the native authority compliance atmosphere is the absence of systemic oversight. There isn’t any central repository for monitoring fraud throughout councils. Many native authorities don’t preserve constant fraud information or carry out organisation-wide danger assessments.
This lack of oversight can put native authorities in a dangerous authorized place. The brand new offence expects that enormous organisations will:
- Determine fraud dangers particular to their operations
- Put proportionate controls in place
- Prepare employees often
- Monitor and assessment insurance policies in mild of evolving dangers
- Exhibit senior management dedication
What ought to councils and suppliers do to forestall fraud?
Whether or not you’re a neighborhood authority or an organization that works with one, there are severe and pressing steps that needs to be taken to forestall fraud and exhibit affordable procedures.
Conduct a fraud danger evaluation
Perceive the place fraud may occur in your operations. Procurement, contract administration, bills, third-party funds, and onboarding are all hotspots.
Implement proportionate procedures
These may embody twin authorisation, provider due diligence, whistleblowing channels, battle of curiosity declarations, bill matching, and doc verification.
Prepare your folks
These in procurement, finance, gross sales, and challenge supply should perceive how fraud works and what the results are.
Scrutinise your partnerships
Councils have to look carefully at suppliers. Suppliers want to know their publicity to native authority governance gaps.
Doc your efforts
The defence underneath the legislation depends upon exhibiting what you probably did to forestall fraud. Insurance policies, coaching logs, audit information, provider checks all matter.
