75% of insider frauds enabled by “excessive trust” within charities, says Commission

Almost 75 per cent of insider frauds at charities are facilitated by “excessive trust” and a “lack of challenge” from people working within the charity, the Charity Commission has warned.

The Commission today published the findings of a study, which highlighted that a number of cultural factors – such as placing excessive trust or responsibility in employees, or failing to thoroughly challenge individuals – contributed to 70 per cent of insider frauds within charities.

In response to the results, the Charity Commission has issued a warning to urge charities to adopt a culture whereby staff, trustees and volunteers are reminded they need to flag any concerning behaviour happening internally and not “turn a blind eye when internal processes aren’t followed”.

The findings follow a number of high profile cases of insider fraud in charities recently, and analysis published by the Commission last year, which revealed insider fraud accounted for a high proportion of fraudulent cases within the charity sector.

Some of the more recent cases include Birmingham Dogs Home, whereby the former chief executive stole £900,000 from the charity. The head of finance at NSA Afan was also jailed earlier this week for spending almost £54,000 of the charity’s money for her own personal gain.

Commenting on the findings. Charity Commission director of investigations, monitoring and enforcement, Michelle Russell said the report has “confirmed what we already suspected from our casework in this area”.

“The crucial lesson for charities isn’t about introducing lengthy counter-fraud policies. It’s about changing people’s behaviours and encouraging staff and all those involved in charities to be vigilant and speak out when things don’t seem right. This must be demonstrated by everyone in an organisation to be truly effective.

“The vast majority of charity workers do incredible work but, as we’ve seen in some troubling cases recently, sadly charities aren’t immune to fraud. A dangerous combination of a lack of accountability and controls not being consistently applied can make any charity – big or small – vulnerable, and create opportunities for fraudsters that will have devastating effects.

“Everybody has a part to play in the fight against charity fraud to ensure the public’s generous donations reach those who need them most."

The Commission issued a six-week long call for information with the aim of helping charities have a greater understanding of the risks and causes of insider fraud and knowing how to better protect their assets.

It received over 50 responses to the consultation, with a third of responding charities having an income of over £1m.

The study also identified that 19 per cent of frauds reported to the authorities resulted in a prosecution, 38 per cent recovered part or all of the money/assets taken, and 76 per cent of the frauds prompted media coverage.

Alongside the results, the Commission has published advice for charities on improving their resilience to fraud, as well as a number of anonymised case studies. The regulator said these demonstrate cases of poor or non-application of financial controls, low fraud awareness, and excessive trust or lack of challenge.

Previous analysis by the Commission found that a third of frauds committed at charities and reported to the Commission were suspected to have been committed by charity staff, trustees or volunteers.

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