Charity Fraud – why it matters and what you need to do!
Fraud against any organisation comes in all shapes and sizes and the conventional fraud threats are not the ones that now pose the biggest threat with fraudsters becoming ever more sophisticated. Charities are no less susceptible to fraud than any other organisation or individual, indeed in many ways they are more at risk with some having high volumes of cash, the involvement of volunteers making it harder to enforce robust controls and procedures and an abundance of information about the organisation been publicly available.
It has never been more important for Charities to remain alert to fraud risks and to maintain the kind of good housekeeping practices that can protect their operations, supporters and beneficiaries.
The growing size of the threat – the Office for National Statistics reported 4.5m fraud and cybercrime incidents in the year ending March 2018. It is now almost certainly a question of when, not if, your charity is targeted. Fraud is thought to cost the sector as much as £2.3bn each year.
Policing fraudulent activity – Police and law enforcement agencies can no longer deal with every reported case of fraud. Fraud against a Charity may receive more attention from the authorities because of the public interest aspects but not always, especially if small sums are involved. In any case, there is little guarantee that an investigation will recover the money lost to the fraudsters.
Maintaining public trust – Charities can be viewed as easy targets so it is important that potential fraudsters and the public who support the Charity can see that fraud prevention and detection is taken seriously. The cost of a fraud to a Charity can do far more harm beyond direct financial loss, there may be reputational harm, harm to staff and staff morale and retention, donor and volunteer morale, and the cost of management time dealing with the situation.
Every part of fraud fighting (deterrence, detection, response) – requires an effective culture of prevention. Each Charity should develop a comprehensive understanding of the fraud-related aspects of its own particular operating environment e.g. cross border operations, large amounts of cash, reliance on a volunteer network, holds high volumes of data or vulnerable beneficiaries.
Eight principles to tackle fraud
- Accept that fraud will always be there – fraudsters won’t not target you because you are a charity! The best prepared organisations are still victims to fraud and Charities are no less likely to be targeted that organisations in the private or public sectors.
- Fraud threats are always changing – the methods fraudsters use constantly evolve due to changes in technology and the agility of the defence of those they are trying to defraud. It is constantly changing; you have to reman agile and be able to adapt your defences quickly.
- The old adage of prevention is better than cure – financial loss and other harm including reputational damage can be managed and mitigated by effective prevention. There are costs to instilling the preventative measures, but this will always be lower than the costs of investigating and repairing damage done.
- Fraudsters take advantage of Trust – the trust and goodwill in the sector is used against Charities by fraudsters. A strong counter fraud culture may feel counter intuitive to the rest of the culture of your organisation but strong procedures and controls and a culture which encourages challenge and whistleblowing is a strong defence against fraud.
- Finding and talking about fraud – others fight fraud by learning from others who have suffered from fraud. If Charities don’t talk about their experiences others don’t learn and the only people who benefit from that are the fraudsters themselves!
- Always report fraud – timely reporting to the regulators and law enforcement agencies is key in building the sectors armouries to fight fraud! If there is loss to the Charity there is also a legal obligation to report this to the Charity Commission as a Serious Incident Report.
- Systems, controls and procedures – a system of robust procedures should be implemented. These should be proportionate to the level of risk in your organisation as well as the size and resources of the organisation. Central to this is an anti-fraud culture which will ensure these are implemented effectively to manage your fraud risk.
- Fighting fraud is a joint effort – staff, trustees, volunteers, beneficiaries and even your supporters all have a key role in fighting fraud. Trustees in particular have an overarching responsibility to protect the assets of the Charity and as a trustee you should manage your risk by ensuring that counter fraud processes are adequate and are operating effectively.
If you have questions or queries regarding the above, please contact us at: firstname.lastname@example.org