When it comes to fraud no industry is safe, and as awful as it sounds charities are often prime targets for fraudsters. Charity fraud can originate from an outside source or the organisation’s own employees/volunteers – the Charity Commission estimates that a third of fraud comes within a charity.
It can have serious financial repercussions and cause irreversible damage to the reputation of a charity. Statistics from the Annual Fraud Indicator estimate that £1.86bn was lost to fraud in the charity sector in 2014. Therefore, it is paramount that you have strong controls in place to prevent it while ensuring your legal duty as a trustee to safeguard a charity’s money is being met.
Why are Charities an attractive target?
Charities naturally have high levels of public trust, which can provide an easy route for fraudsters looking to abuse public generosity and charity goodwill. Moreover, the view that ‘no-one would exploit a charity’ is often a big factor which leads to the warning signs of charity fraud being overlooked.
Small charities tend to be run by a handful of volunteers, which can result in a lack of strong internal controls due to the shared responsibility of individuals. Combined with an over-reliance on trust, this can make them easy targets for career fraudsters.
What should you look out for?
Fraud can be a difficult thing to detect, especially if you don’t have the correct systems in place. It is up to the charities trustees to ensure that money is being properly safeguarded, and this means being vigilant to all the warning signs of fraud.
Look out for large donations which come with suspicious or complicated conditions such as forwarding a proportion of that donation to another charity. Fraudsters will often shroud big donations in convoluted terms and stipulations, replacing bank details with their own personal account in the process. The prospect of such a sizeable donation to your charity can be enticing. Always be cautious when dealing with other currencies, as fraudsters more often than not come from overseas
Unexpected transaction activity
Things like high volumes of cancelled checks or transactions which are of irregular frequency/timing are a big indication of charity fraud. Make sure you have people responsible for each department or section of your charity for handling invoices.
Fake details or fabricated suppliers
Often with smaller charities, volunteers and inexperienced financial controllers can be misled into paying invoices for fictitious suppliers. Supplier invoices can easily be replicated, with the fraudster replacing bank details with their own.
Be wary of duplicated payments, in which fraudsters replicate an invoice and replace the bank details of the second with their own. In doing so, the original recipient is paid in addition to the fraudster. This is often very hard to detect without rigorous audits.
From an internal perspective, make sure you have strong procedures to deal with expenses. With one-third of fraud coming from within a charity, it’s vital that you have processes in place to document and monitor outgoings from employees/volunteers.
What should you be doing to avoid potential fraud?
There are numerous things that a charity can do to alleviate the risk of being targeted by fraudsters. Having strong controls and measures in place can help to curb and deter those looking to target your charity.
Here’s a checklist of things you should be doing to lessen the risk of:
- Encourage a culture of ethical behaviour throughout your charity and ensure you have reporting arrangements in place
- Develop a formal anti-fraud policy
- Regularly review accounting and audit procedures, and be sure to get advice from your accountant as to how controls can be improved
- Carry out regular anti-fraud assessments
- Ensure your recruitment methods are vigorous
- Implement strong controls and process, ensuring a stringent audit is carried out
- Carry out spot checks to avoid any sort of predictable routine
- Avoiding cutting costs when financial security is involved
- Carry out post-fraud investigations to figure out weak spots
Haines Watts Newcastle – specialist charity accountants
At Haines Watts, we specialise in giving holistic financial advice to charities. Our expertise stems from years of experience advising a diverse mix of North East charities and not-for-profits.
If you’d like to find about more about recognising and preventing charity fraud, get in touch with Gillian Hollier by using our contact form.
Want to know more? Call us on 0191 2699 960 or email firstname.lastname@example.org