The Economic Crime and Corporate Transparency Act 2023 introduces new legal responsibilities aimed at improving corporate accountability and fraud prevention in the UK. While originally designed with corporate entities in mind, it has important implications for FE colleges and independent training providers.
Managing fraud risks is nothing new for colleges. Indeed, the College Financial Handbook, the funding rules and accountability agreements all contain obligations on fraud prevention. But this act does create a new layer of obligations and risks which colleges will need to feed into their processes.
Key changes:
‘Senior management’ offence (“SM offence”)
Colleges and ITPs could face criminal liability if a senior manager (such as a principal, finance director or senior leadership team member) commits a specified economic offence (such as false accounting or fraud) whilst acting with the authority of the institution. If this occurs, the college itself could be found guilty of the same offence.
This SM offence applies to all colleges and providers and there is no defence available, meaning everyone needs to be alive to this risk.
‘Failure to prevent fraud’ offence (“FTPF offence”)
This provision, which only came into force this month, means that colleges that meet the definition of a ‘large organisation’ may also be held criminally liable, and receive an unlimited fine, if someone associated with the college or ITP (such as staff, governors, contractors, or agents) commits fraud with the intention of benefitting the provider, even if the provider was unaware of this.
A college or ITP is considered ‘large’ if it meets two of the following three criteria:
- It has more than 250 employees.
- Its turnover exceeds £36 million.
- It has assets greater than £18 million.
If an institution is part of a larger group, note that these thresholds apply to the entire group.
Even if a college or ITP is not classified as ‘large’, the Home Office and the Department of Education (DfE) recommend that all education providers adopt good practice in fraud prevention.
Unlike the SM offence, there is a defence if the institution can demonstrate that it was or was intended to be a victim of fraud, it had reasonable fraud prevention measures in place, or it was not reasonable to expect such prevention procedures to be in place.
How can colleges and ITPs prevent fraud?
Recommended fraud prevention procedures:
- Risk assessments: Undertake and regularly review risk assessments. Identify areas of vulnerability, such as procurement, payroll, student funding and sub-contracting arrangements.
- Due diligence: Have proportionate and risk-based due diligence procedures in place to vet third-party providers, agents and contractors (especially those involved in financial transactions or student recruitment).
- Policies and training: Ensure anti-fraud and whistleblowing policies are up-to-date and clearly communicated, and that staff receive regular training.
- Contracting: Make sure that relevant contracts contain clauses to protect the college as far as possible. To take one example, there have been high profile examples of frauds by subcontractors to colleges. So subcontracts should put obligations on subcontractors (ours does).
- Anti-fraud culture: Ensure staff are comfortable to speak up about concerns and that reporting channels are clear and accessible.
- Governance and oversight: Ensure senior managers understand their responsibilities and that oversight mechanisms are in place.
DfE has issued sector-specific guidance on fraud prevention which outlines common risks and provides useful templates. Colleges and ITPs are encouraged to develop a fraud response plan, use DfE’s fraud indicators checklist and align with cyber security standards to prevent digital fraud. Colleges should review this guidance in detail.
Conclusion
The act marks a significant shift toward greater transparency and accountability and raises the bar in terms of how colleges and ITPs are expected to manage fraud risk.
There have been a number of matters before the Teaching Regulation Agency for example in the past where senior members of the leadership team have been prohibited from teaching due to fraud. If such fraud had been undertaken since the act came into force, there is a real chance that the incorporated body could have faced liability, too.
Whether or not your college or ITP is a ‘large’ organisation, adopting recommended procedures is a proactive step toward safeguarding it’s reputation and finances and protecting against possible criminal liability. Now is the time to review policies and staff training, update internal processes, and seek professional support where necessary to ensure you meet the evolving regulatory requirements.
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