Charities are not prepared for fraudsters 24/02/09
Many charities are ill-prepared to deal with fraud, according to independent watchdog the Fraud Advisory Panel (FAP).

New research conducted amongst charities with an income of £10,000 or more, and released today, reveals that 60% of charities in England and Wales have no significant anti-fraud policies and procedures in place. This rises to almost three-quarters amongst the smaller charities.

The Fraud Advisory Panel studied more than one thousand charities of varying type and size to assess the impact and cost of fraud in the charitable sector, and to discover what charities are doing to fight fraud.

It found that even though half of all respondents think fraud is a major risk to charities, due to their reliance on trust and goodwill, fraud is still not properly considered across the sector as a whole. However, only seven per cent of respondents, a comparatively small number, said they had suffered a fraud in the last two years.

Ros Wright, chairman of the Panel and a former director of the Serious Fraud Office, said: “Charities that fall victim to fraud must cope with cancelled projects and damaged reputations as well as direct financial losses. Then there is the harm done to staff morale; our in-depth follow-up interviews found significant levels of stress, feelings of betrayal and illness, and sometimes even redundancy, all as a direct consequence of fraud.”

”Yet most charities still have no anti-fraud measures in place. Our researchers spoke to organisations that had been brought to the very brink of extinction by fraud, but many remain unaware even of the support available through bodies such as the Charity Commission.”

“Charities that have avoided the attentions of fraudsters need to learn lessons from those which have not been so fortunate.”

Just over half of the charities that have already fallen victim to fraud now think, in retrospect, that they contributed to the fraud taking place by being too trusting or having inadequate internal controls.

“That should be a wake up call, but instead many charities are behaving as if fraud happens only to other organisations”, added Wright.

“In fact, the experiences of the charities in our study suggest that in England and Wales thousands of charitable organisations are hit by fraud every year. The small organisations are the least prepared, and so are the most potentially vulnerable.

"But remember, the vast majority of the 170,000 plus charities in England and Wales are small charities. Overcoming resistance to change, spreading the word about the urgent need for real preventative and effective controls and procedures, is clearly an important and pressing challenge both for individual charities and the sector as a whole.”

Andrew Hind, chief executive of the Charity Commission, commented: "We welcome the fact that this piece of research has been done. Fraud is a serious problem and clearly there is more that charities can and should do to be fraud-aware.

"However the research also shows that fraud in the charity sector is far lower than other sectors, and that of the 7% of charities that said they had experienced fraud in the last two years, half of these incidences involved amounts of under £1,000, which puts the findings in context.

"At a time of recession it is vital that all money given to charities is applied correctly, and we do expect charities to report incidences to the Commission through our serious incident reporting system. Charity trustees are expected to have regard to all relevant Commission guidance, including on reporting serious incidents, and our guidance continues to be promoted through events, visits and publications.

"The benevolent and trusting nature of the charity sector does mean that it is potentially vulnerable to those who would commit fraud. However there does need to be a proportionate approach towards what small organisations with limited resources and finances are expected to do to protect themselves, and what we would rightly expect of larger charities with significant resource and capability. ".

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