Construction companies have been warned to get up to speed with their responsibilities under new fraud regulations due to come into effect in September.
Under the Economic Crime and Corporate Transparency Act 2023 (ECCTA) it will be an offence to fail to have “reasonable fraud prevention measures in place”.
Organisations could be liable if an employee, agent, subsidiary or other associated person commits fraud intending to benefit the company and it did not have sufficient measures in place to try to stop them.
According to guidance released by the Home Office, it will apply “in certain circumstances” where the fraud is committed with the intention of benefiting a client rather than the organisation itself.
The offence will apply to large companies that meet two of the qualifying criteria:
- More than 250 employees
- More than £36m turnover
- More than £18m in total assets
The Home Office says a fraud prevention framework should be put in place and informed by six principles: top level commitment; risk assessment; proportionate risk-based prevention procedures; due diligence; communication (including training); and monitoring and review.
It adds that what constitutes reasonable procedures will relate to the context of each case and will be resolved in court.
Companies House and payroll data may be used to help identify red flags, the department said.
Vivek Dodd, chief executive of compliance platform Skillcast, said: “The ECCTA places a clear legal obligation on large organisations in the UK to demonstrate they have reasonable procedures to prevent fraud, and that does not just mean having policies on paper.
“Businesses must be able to evidence undertaking detailed risk assessments, embedding fraud controls into daily operations, and ensuring visible, top-level commitment to compliance.”
The company said it assessed 2,000 private limited companies’ data from Companies House and ranked the construction sector as among the better prepared for the new law.
According to Skillcast, only 5 per cent of the 200 construction businesses it analysed had overdue confirmation statements, while just 4 per cent had late account filings, signalling limited gaps in compliance and governance.
However, 34 per cent failed to name someone as the person of significant control, a serious lapse that risks prosecution.
The sector also recorded a low rate of director turnover compared with other industries, averaging 0.3 changes per year, but recorded 20 company name changes, which could be perceived as an indicator of regulatory evasion.
Anil Iyer, a civil engineer and director of B4 Investigate, which develops fraud-fighting software, told Construction News he was sceptical that the new law would do much to tackle fraud.
“In infrastructure, with all its delays, cost overruns and scandals, fraud and corruption are rife. The ECCTA is simply another compliance-led approach. Do we really want another box-ticking and form-filling exercise which on paper looks good but in reality achieves little?
“Instead, I feel we need a proactive preventative mindset that seeks to explore opportunities where fraud and corruption might occur at all stages of an infrastructure project lifecycle.
“Such a fraud and corruption profile would be best developed through collaborative working among the key project stakeholders and fed into the risk register of the project, where it would be actively monitored throughout the project.”
He added: “This process already works successfully for upholding health and safety principles through projects. There’s no reason why we shouldn’t be able to achieve similar success in our fight to reduce fraud and corruption in projects.”
Under the same law, Companies House filing rules are also being reformed.
As reported by CN last week, all accounts filings made from April 2027 must be filed using commercial software, with web and paper options no longer available.
From the same date, small and micro companies will be required to publish their balance sheets and profit and loss figures in their accounts. The filings will be made public on the Companies House website.
Concerns have been raised about the costs and privacy implications of the new rules, as well as a fear that older company owners could choose to retire to avoid the new bureaucracy.
A Companies House spokesperson said: “We are streamlining accounts filing obligations to improve the quality, transparency and reliability of accounts data, and help disrupt economic crime.
“These reforms will come into effect in 21 months (1 April 2027), giving all companies one full accounting year plus nine months to prepare.”
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Ian Weinfass