Britain’s secret charity cheats: the questions your charity should be asking

Written by Katherine Pymont
08/06/18

The BBC series Britain's secret charity cheats has featured numerous heart-breaking stories of charities up and down the country, big and small, suffering at the hands of deceptive employees, cheating members of the public and bogus fundraisers.

The programme claims the sector loses a staggering £2bn a year to fraud. Fraud impacts not only the vital work charitable organisations do but also the public's perception of these organisations. Charities who are a victim of fraud suffer financially and reputationally since charities are built on foundations of public trust and confidence. It is upsetting for staff, volunteers, trustees and beneficiaries when funds are lost and the reputational damage caused often has a significant ripple effect, sometimes extending to the sector as a whole.

A recent report by the Charity Commission found that 75 per cent of insider fraud in charities arises for cultural reasons such as placing excessive trust in individuals or lack of internal oversight.

Since prevention is better than cure when it comes to fraud, charities, irrespective of size and stature, should be asking themselves the following questions about their day-to-day operations, what systems are in place and whether there is a plan to ensure an effective response if fraud is detected.

Risk assessment

1. Consider which of the charity’s activities leave it most vulnerable to fraud. For example, does only one individual have sole charge and responsibility for financial processing and reporting, or does the charity have a large number of volunteers that are more difficult monitor?

2. Look at the level of fraud awareness within the charity. Is the charity alert to the potential new fraud risks, such as phishing, cyber-hacking of financial accounts and interception of email communications to third parties containing sensitive financial information?

3. Does the charity have an appropriate anti-fraud policy? The purpose of this is to provide a definition of fraud and define authority levels, responsibilities for action, and reporting lines in the event of suspected, attempted or actual fraud.

Fraud detection

1. Know the warning signs - for example red flags might be irregular invoicing, a sudden change in an employee’s behaviour or missing documents or records.

2. Implement staff training and make it known that everyone associated with the charity has a responsibility for being vigilant and keeping an eye out for any signs of fraud.

3. Publish a procedure dealing with how to report suspected fraud confidentially.

4. Ensure thorough checks and controls are in place (these could be computerised and/or manual processes).

Response

1. Assemble a core team of people to work together to investigate and combat the fraud. Depending on the size of the charity consider including representatives from Human Resources, IT, Finance and the Management Team. For smaller charities Trustees involvement at an early stage is important.

2. Take steps to ensure that the fraudster is not aware that you have identified the potential fraud. It is very important that the evidence is preserved.

3. Conduct a thorough investigation with a detailed record (but be alert to the fact that any documents created may have to be disclosed in subsequent legal proceedings).

4. Consider the legal options. You may want to terminate the employee’s employment, involve the police in bringing a criminal prosecution or bring a civil claim to try to recover funds.

The recent Charity Commission report highlights the importance of implementing an anti-fraud culture in order to seek to avoid incidences of fraud in future. Charity leaders and trustees (who have a duty to protect their charity’s assets and resources) must not simply think fraud happens elsewhere. The BBC series shows the sheer prevalence of fraudsters focusing their attentions on the charity sector. Charities must take preventative steps now to ensure that they do not find themselves unnecessarily exposed to fraud and the associated, sometimes potentially devastating, ramifications.

Katherine Pymont is an associate at law firm Kingsley Napley LLP



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