Charities report losses of £8m to fraud

Charities have lost almost £8m as a result of fraud, according to figures from Action Fraud, obtained by RSM via a freedom of information request.

The figures, handed to RSM by Action Fraud, the UK’s national fraud and cyber-crime reporting centre, revealed charities submitted 1,057 reports about fraud in 2018-19, with average losses per case totalling £7,428.

Employee fraud accounted for the highest level of fraud losses (£1.685m), followed by abuse of a position of trust (£1.627m) and mandate fraud (£1.232m).

The highest number of identified complaints were about mandate fraud (173), followed by employee fraud (95) and hacking (62).

According to RSM, mandate fraud occurs when an employee is tricked into changing a regular payment mandate such as a direct debit, standing order or bank transfer and redirecting it into a fraudster’s account.

In most cases, fraudsters contact an employee via e-mail, pretending to be from a supplier that receives regular payments from the organisation.

The fake supplier generally explains to the employee that the standing order will need to be updated with the ‘firm’s’ new account details as they have changed banks.

However, the scam can go unnoticed or only come to light when the real supplier chases for payment. According to RSM, this can be many months after the first transfer of money.

Commenting, RSM head of charities, Nick Sladden said: “While this data is unlikely to show the true level of fraud affecting charities, it is quite revealing about the types of fraud to which charities are most regularly falling victim.

“Mandate fraud appears to be a particular problem with affected charities losing over £7,000 on average. Frankly, if staff receive the right training and if the correct controls are in place, there's no reason why these types of fraud attempts should be successful.

“It's also clear that some charities need to keep a closer eye on their employees - and on those in positions of authority. While no-one wants to work within a culture of distrust, charities still need to be alert to the threat of insider fraud and ensure that proper checks and balances are in place to minimise the risk.

“While some larger charities may be able to absorb the losses from fraud, for smaller charities already struggling with cashflow issues, a loss in the thousands can prove critical.”