With the National Charity Fraud Awareness campaign recently concluded, it is a timely prompt for charities to ensure that they maintain focus on this risk and that those working with the charity are sufficiently fraud aware. This includes ensuring that your charity has appropriate and robust systems in place and sufficient procedures to help prevent, detect and respond to fraud.
It seems unthinkable to many of us that charities would be targeted but, unfortunately, charities can in fact be particularly attractive to fraudsters – the very ethos of charities, built on volunteerism and pursuit of a common and shared goal, may create a degree of trust, which can allow the unscrupulous to operate with less suspicion.
In fact, a measurement by the National Fraud Authority of financial crime against charities revealed annual losses of around £2 billion or 2.4% of annual charity income. The Annual Fraud Indicator 2017 estimates that fraud against charities (including procurement, payroll and grant fraud) has increased by £400m over the past 12 months.
And all of this is only based on what is reported so the scale of the problem is likely to be even greater.
Fraud affects small, local organisations such as school parent teacher associations, as well as the larger charities and can include misuse of charity funds, false expenses, false invoicing, credit card scams, unauthorised fundraising and identity fraud (for example there were two reported cases this summer of hospices being defrauded out of hundreds of thousands of pounds by fraudsters phoning up and pretending to be from a bank).
The impact of fraud and financial crime on a charity can be significant, as adverse publicity and damage to reputation can be more damaging that just the initial financial loss. It is therefore important that trustees (who are under a duty to safeguard charity resources) take reasonable steps to reduce the risk of such events happening and the impact when such event do happen.
The protection of charity funds begins with having robust financial control systems within a framework of strong and effective governance. To help your charity reduce the risk of fraud and be more alert to the risks, 15 public, law enforcement and major charity sector organisations have published a Guide on Charity Fraud for the trustees and managers of charities to use as a starting point. This sets out the following checklist:
- Instil a culture of ethical behaviour throughout your charity. Make sure everyone understands what fraud means to the charity and encourage professional scepticism and appropriate challenge.
- Develop an anti-fraud policy. This is a formal written document with actions and responsibilities. Most importantly though everyone needs to be aware of and understand this policy.
- Understand your risks. Take regular assessments of the risks your charity might be exposed to and remember this will change as new trends emerge, for example are the details of finance personnel and/or key suppliers in the public domain which could be used in phishing.
- Implement robust financial controls and stress test these. Use the Charity Commission’s CC8 guidance and checklist for reference.
- Ensure there are robust recruitment procedures. Draw up a self-declaration form for staff and check references for new starters.
- Develop a whistleblowing policy. It is important that staff know how to report concerns and to whom – and that this is encouraged.
- Encourage awareness throughout the charity by discussing the risks and communicating anti-fraud measures and training staff.
- Keep records of suspected and confirmed fraud. Remember to also consider reporting any fraud to the Charity Commission as a serious incident and any fraud or attempted fraud to Action Fraud.
More generally, discuss any concerns with other trustees or staff – if something doesn’t look or seem right then it should be investigated.