Is your charity at risk of fraud?

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Charity Fraud Awareness Week took place between 27 November and 1 December 2023, sharing knowledge and good practice to protect charitable organisations from the increasing threat of fraud.

In line with this, BDO and Fraud Advisory Panel released their Charity Fraud Report 2023, revealing findings from research conducted over the past year.

One of their findings was that the cost-of-living crisis had increased the risk of charity-related fraud; so, it’s important now more than ever that charities are vigilant.

This year’s Charity Fraud Report underlines the need for charities of all sizes to cooperate in the fight against the threats posed by fraud. The 2023 survey clearly identifies those threats and highlights the need for collaboration across the private, public, and third sectors, so that the strength and effectiveness of our counter-fraud defences are maximised.’ – Sir David Green, Chair, Fraud Advisory Panel

The headlines

This data is drawn from 121 UK-based charities and, as a sample, has been interpreted as a general overview of the sector.

Over the past 12 months:

  • 36% experienced more instances of fraud than last year
  • 43% reported fraud or attempted fraud
  • 92% experienced fraud related financial losses
  • 67% believed the cost-of-living crisis has increased fraud risk
  • 50% of detected frauds were perpetrated by staff members, volunteers, or trustees
  • 45% suffered a loss of morale amongst staff, volunteers or trustees
  • 24% reported a loss of reputation
  • 64% expected fraud risk to increase over the next year

As well as this, Action Fraud have found fraudsters diverted more than £2.7 million from charities over the past 12 months. There were 501 reported fraud cases between 1 November 2022 and 31 October 2023.

Diving deeper

Particularly concerning is that half of the detected frauds were committed by those associated with the charities. In a sector so reliant on good-will and voluntary contribution, this presents a worrying trend.

The three most commonly reported types of fraud were misappropriation of cash or assets by staff or volunteer (42%), fraudulent staff expenses (35%) and payment diversion (Authorised Push Payment) fraud (33%).

Notably, the biggest threat perceived by the 121 charities was cyber fraud; this could be due to greater coverage in the media. Despite misappropriation of assets or cash being the most common type of fraud this year, only 7% of charities considered to be a significant risk, demonstrating why publishing this sort of data is so vital.

57% of charities cited misplaced trust as a key issue. Trust is an integral part or running a charitable (or any other) organisation, but this shouldn’t be at the expense of good checks and controls. Due diligence checks and anti-fraud controls at times can seem like needless formalities, but in fact ensure all the proper practices are taking place.

Some reflections

Rui Domingues, Director of Finance & Operations, Charity Finance Group outlines some of his key takeaways from the past year’s data.

Financial strain can lead to desperation and desperate measures being taken, both internally and externally. When you’ve got the pressure to try and maintain operations to support beneficiaries, it’s really easy to be tempted into cutting corners or doing something that isn’t quite right.

Your staff, trustees and volunteers are the eyes and ears of your organisation and are on the front-line of fraud prevention. It’s vital that they are able to recognise different types of fraud and understand its potential impact.

Preventing fraud

It’s worth consider that is that there is greater awareness of fraud over recent years. Therefore, it may be that more fraud is occurring, but it may instead be that it is identified and reported more readily, where once it was undetected. Ultimately, greater levels of reporting of fraud is a good thing, as charities are increasingly prepared for potential dangers and can take steps to mitigate risks.

To prevent fraud, Burton Sweet recommend:

  • Prepare: Promote best practice within your organisation and ensure that everyone is aware of the relevant policies and procedures.
  • Educate: Share resources with your staff about fraud prevention. Consider running a session that specifically covers this topic.
  • Act: If you think your charity is either at risk or has been targeted fraudulently, report this as soon as possible. Time is of the essence in these situations.

Have a look at PreventCharityFraud.org.uk, a site created by the Fraud Advisory Panel and the Charity Commission with significant sector support, who (all year round) have a number of links and resources to help trustees, teams and volunteers understand the risks and establish tools to prevent fraud and cybercrime.

Need some assistance?

Fraud might seem like a foreign concept, but it can very quickly impact your charity.

Burton Sweet has a longstanding commitment to charities and civil society organisations, offering practical, professional and passionate support. We want to assist you, so you can deliver effectively for the communities you serve and show the good you do.

If you would like any specific training, or to discuss any of the topics covered in this article, please contact us and we will be happy to help…

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