OCTOBER 2019
OCTOBER 2019
Everyone has a part to play in the fight against charity fraud – trustees, employees, beneficiaries and the general public. Every pound lost to fraud is a pound that cannot be spent on charitable causes. The public and other donors give money to enable charities to thrive and achieve their aims. Public trust and confidence in the sector relies upon good governance in charities, and tackling fraud is a vital component.
Relatively little is known about the nature and extent of charity fraud, resulting in vulnerabilities that fraudsters can exploit. The Charity Commission for England and Wales is committed to tackling these threats by giving charities the understanding and tools they need to succeed in fighting fraud.
Charities in England spend nearly
EVERY YEAR
But less than
of charities have a fraud awareness training programme
Just
of charities have a whistleblowing policy
In 2009 the Fraud Advisory Panel (supported by the Charity Commission) published Fraud in the charitable sector – at that time the most extensive charity fraud study undertaken in the UK. Ten years on, the Commission (partnered by the Fraud Advisory Panel) repeated and extended the scope of that survey, contacting a representative sample of 15,000 registered charities across England and Wales. With a 22% response rate, this is the largest ever analysis of fraud committed against UK charities.
The results are generally encouraging, with some improvements made over the last 10 years. However, significant fraud threats and vulnerabilities persist, and many charities are yet to adopt the good practice required to sufficiently protect themselves from fraud.
Charities in England and Wales spend nearly £80bn every year – a tempting target for fraudsters. Although there is no universally accepted estimate of the scale of charity fraud, research suggests the cost to the sector is likely to be hundreds of millions, potentially billions, of pounds each year. The strong ethos of trust common to charities can make them more susceptible to fraud than similar size public or private sector organisations.
This report summarises charities’ progress in tackling fraud (2009 results are highlighted in brackets), identifies where further action should be taken, signposts available guidance, and highlights the good practice that’s been adopted by those charities keen to take a pro-active and transparent approach to fighting fraud. Together, we can keep charity fraud out.
Charities are increasingly aware of the risk of fraud, with larger charities the most likely to accept the threats faced. Acknowledging the risk of fraud is the first step towards better fraud prevention.
CHARITIES SHOULD RECOGNISE THE RISK OF FRAUD AND UNDERSTAND THE HARM IT CAN CAUSE TO THEIR VALUABLE FUNDS AND REPUTATION.
CHARITIES SHOULD RECOGNISE THEY CAN BE VULNERABLE TO DIFFERENT FRAUD TYPES, STRENGTHEN WHISTLEBLOWING ARRANGEMENTS AND INTRODUCE FRAUD AWARENESS RAISING PROGRAMMES.
of charities believe they’re vulnerable to fraud because of an over-reliance on goodwill and trust
(the following analysis relates only to charities that have suffered a fraud in the last 2 years)
The decline in the number of charities reporting at least one fraud during the last two years runs contrary to national trends. This suggests that charities still have much to do to better identify and report fraud. Mandate/Chief Executive (CEO) fraud is the most common type of fraud targeted against charities. This is a type of social engineering, involving impersonation of legitimate organisations the charity deals with, or senior staff of the charity itself, usually conducted via hoax emails.
CHARITIES SHOULD IMPROVE THEIR KNOWLEDGE OF THE MOST COMMON FRAUD TYPES AND ENSURE ADEQUATE REPORTING ARRANGEMENTS ARE IN PLACE.
(the following analysis relates only to charities that have suffered a fraud in the last 2 years)
(the following analysis relates only to charities that have suffered a fraud in the last 2 years)
of frauds cost less than £1000
(the following analysis relates only to char
Reporting to external agencies remains low, although reporting to the Charity Commission has improved. Excessive trust is the main contributory factor that allows fraud to occur, suggesting more needs to be done to embed a culture of scrutiny and appropriate challenge. It is encouraging that although the majority of charities did not believe they contributed to the fraud occurring, nearly three quarters still changed their counter-fraud arrangements as a result.
CHARITIES SHOULD REVIEW THEIR FINANCIAL CONTROLS ON A REGULAR BASIS. EXCESSIVE RELIANCE ON TRUST AND GOODWILL CAN INCREASE FRAUD RISK, SO ALTERNATIVE PREVENTION AND DETECTION ARRANGEMENTS SHOULD BE PUT IN PLACE.
stated the fraud had some form of adverse impact on the charity
think their charity contributed in some way to the fraud occurring
stated that their charity was too trusting
said the fraud resulted in reputational damage
reported the fraud to the police
of cases were reported to the Board
did not report the fraud to any external organisation
Public trust and confidence relies upon charities taking proportionate steps to protect themselves from fraud and financial abuse. All charities, regardless of size and type, are encouraged to demonstrate that commitment by adopting Tackling Charity Fraud – Eight Guiding Principles.
CASE STUDY 1
Insider fraud – the importance of pre-employment checks
A treasurer who stole nearly £845,000 from a large charity turned out to be a serial fraudster who had 15 previous convictions for dishonesty, theft, benefit fraud and arson. Over a 20 year period the charity raised in excess of £30m through fundraising and events. However on at least seven occasions the fraudster kept most of the cash raised, subsequently spending those charity funds on foreign holidays. The fraud was eventually discovered when concerns were raised over a £2m black hole in the charity accounts.
LEARNING POINT
Charities should ensure pre-employment checks are carried out before recruiting staff, particularly to financial/ senior roles.
CASE STUDY 2
Adopting good practice, getting the culture right
The Charity Commission analysed fraud reporting at three charities that have, in recent years, employed counter-fraud specialists. At each charity the specialist introduced good-practice procedures, including enhanced fraud awareness training for staff and volunteers, a simplified reporting framework, and better whistleblowing arrangements where staff were encouraged to raise concerns. These improvements resulted in a near three-fold increase in the total number of fraud reports over a five year period. This suggests that a significant number of frauds were uncovered that wouldn’t otherwise have been identified.
LEARNING POINT
All charities should undertake basic good practice in countering fraud – regardless of whether they have dedicated counter-fraud specialists in place. Fraud referrals at three charities over a five year span.
CASE STUDY 3
Beneficiary fraud and due diligence checks
A fraudster pretended to have bladder cancer, thyroid cancer, as well as liver and kidney failure, in order to defraud a charity that provided memorable family events for people with terminal illnesses.
The fraudster initially posted messages on social media claiming to be dying and asking for help. She was contacted by a volunteer from the charity who offered to organise a wedding vow renewal ceremony for her worth £15,000. The charity asked for proof of her diagnosis but soon became suspicious of the evidence provided, including a falsified NHS letter. Following an investigation the fraudster was prosecuted and admitted fraud by false representation, receiving a one-year suspended sentence.
LEARNING POINT
Charities should always apply an appropriate level of challenge and undertake sufficient due diligence.
CASE STUDY 4
CEO Fraud – consistently applying fraud prevention controls
The Finance Director (FD) of a large charity delivered a presentation to an international aid conference. Her attendance was promoted in advance on both the conference and charity’s websites, as well as her own social media network.
On the day of the presentation, the charity received an email claiming to be from the FD, instructing the finance team to transfer £55,000 to a specified bank account, allegedly as part of an urgent aid-funding package agreed at the conference that day. The email was convincing, including genuine information about the FD and the conference event. The money was immediately transferred as requested, but was subsequently found to be fraudulent. The money was never recovered.
LEARNING POINT
Fraudsters regularly attempt CEO/ Impersonation fraud, usually via hoax emails. Charities should put appropriate checks in place and ensure financial controls can’t be overriden by fraudsters impersonating senior charity staff.
Creating a culture of openness and transparency helps fight fraud, but only 2 UK charities regularly publish details of frauds they’ve suffered
There’s plenty of free information and guidance available to help charities fight fraud.
The Charity Commission, together with Fraud Advisory Panel and partners from the Charities Against Fraud Group, have produced a series of free resources (including helpsheets, webinars and good practice guides) as part of International Charity Fraud Awareness Week.
of charities changed their procedures or enhanced internal controls to avoid future frauds
Category Research