The law in the UK prior to the Fraud Act 2006 was unwieldy and unhelpful in matters of fraud, theft, and deception. A 2002 Law Commission report found it was not fit for purpose and the Act was designed to “clarify the law, and provide law enforcers and prosecutors with a modern and flexible law of fraud”.
Fraud is a global problem. All companies, regardless of their size, sector, or country are at risk. Fraud can originate from internal or external forces or a combination of the two. Statistics can be alarming and are even more so when we consider that a lot of fraud is believed to go undetected or unreported.
The PwC Global Economic Crime and Fraud Survey 2020 of more than 5,000 companies found that fraud cost them “an eye-watering USD 42 billion” over the 24 months prior. Of these, “37% of frauds were committed by employees and 20% involved an employee colluding with another party”. And as far as external risk goes, the FBI’s 2020 Internet Crime Report listed business email compromise (BEC) and email account compromise (EAC) losses to be worth USD 1.86 billion.
The Fraud Act 2006
The Fraud Act 2006 defined fraud as a single offence that could be committed in one of three ways. Fraud can be committed: by false representation, by failing to disclose information, or by abuse of position. These three categories are at the centre of the Act. The prosecution no longer has to prove that a victim was affected or taken in by fraud, nor does any loss need to occur: intent is what counts.
What is fraud by false representation?
Fraud by false representation is committed when a person makes a false representation and, by doing so, intends to gain for himself or others, or cause loss or the risk of it to another. A false representation qualifies as such if the person knows that what they are doing or saying is, or could be, untrue or misleading. This applies whether it is expressed or implied.
This would include things such as making false expense or insurance claims.
What is fraud by failing to disclose information?
Fraud by failing to disclose information is similar to false representation but is committed when a person does not disclose information they are legally obliged to with the intent to gain for himself or others, or cause loss or the risk of it to another.
An example would be selling goods claiming that they are one thing when in fact they are another, such as selling cubic zirconia and claiming they are diamonds.
What is fraud by abuse of position?
Fraud by abuse of position can occur when a person is in a position where they are expected to “safeguard, or not to act against, the financial interests of another person”. This can be through an omission or an action and relates to an intention to gain for himself or others, or cause loss, or the risk of it, to another.
An example would be giving discounts to friends and corruption cases with bribes.
How to protect your company against fraud
The Fraud Act 2006 helps in charging and prosecuting fraudsters, but prevention is far better than the cure. Costs can be both quantifiable and non-quantifiable. Actual losses and costs of fines, penalties and other direct costs can be added up. Others are less simple to assess. The damage incurred due to loss of reputation, market position, morale, and future earnings can only be guessed at.
Companies should educate employees on what constitutes fraud and how to spot it. They need to know that internal fraud will not be tolerated and how to avoid becoming a victim of external fraud.
PwC’s report found that, “companies that have a dedicated fraud programme in place generally spent less (relative to revenue) on response, remediation and fines”. This equated to spending 42% less on response and 17% less on remediation costs than companies without dedicated fraud programmes spent.
Technology has a major part to play in fraud prevention. Trustpair offers a complete solution to manage supplier risk and detect fraud. We cover international risk with automatic checking of bank details to ensure that payments are made to the correct party. Our vendor master file software means that continuous auditing keeps information secure and up to date. This ensures that payments are made to the correct party.
Our software ensures compliance and traceability of control processes. And, of course, frees up employees from mundane, time-heavy tasks that are open to human error, corruption, and bribery.
We would love to demonstrate how Trustpair software can help your company in the fight against fraud. Please contact us to request a demo and help keep your business safe.
Key Takeaways:
- The Fraud Act 2006 simplifies and improves previous legislation in the UK.
- Fraud can be committed by false representation, failing to disclose information, or by abuse of position
- Trustpair software will give extra security and peace of mind
