Charity fraud awareness – the risks of insider fraud

07/11/2019

Research published in October by the Charity Commission to coincide with Charity Fraud Awareness Week indicated that more than half of charities that suffered fraud knew the perpetrators. Thiswas the largest ever survey on fraud and cybercrime, with over 3,300 charities responding.

Where the fraudster was identified, approximately 30% of frauds were carried out by paid staff. A similar proportion was carried out by trustees and volunteers and 13% by beneficiaries. The most common type of fraud (at 18%) was mandate or CEO fraud. This is where an individual impersonates someone to change bank payment details such as mandates or payroll bank details. Fraud relating to abuse of position accounted for 12% of frauds.

Charities are at particular risk of insider fraud due to their general ethos of trust and goodwill towards individuals.

Very few charities that responded to the survey had fraud awareness training (9%). Most charities are now recognising fraud as a major risk. They realise that a fraud can have a detrimental impact on both morale in the charity and public trust. As a consequence, it has wider implications than just the money lost through the fraud.

Reducing the risk of charity fraud

The three steps that the Commission’s report suggests charities should take to combat the risk of fraud are:

• Ensure basic financial controls are in place and enforced, such as dual signatory to bank accounts and performing regular bank reconciliations.
• Have segregation of financial duties wherever possible, with no one individual having total control or oversight
• Encourage a culture such that staff, trustees and volunteers feel comfortable questioning unusual activities and behaviour and talk openly and honestly about fraud.

The Charity Commission has also published an update about fraud and cyber crime: Protect your charity from fraud and cyber crime. It includes the document ‘8 guiding principles for tackling charity fraud’ and many other useful links. In particular, there are free e-learning resources on tackling the risk of insider fraud (preventing insider fraud e-learning video) and cyber crime (e-learning training package: ‘Stay Safe Online: top tips for staff’).

For help and advice on reviewing your charity financial controls and policies, contact Elizabeth Irvine.