Preventing charity fraud

Every pound that is lost to fraud, is one pound less that can be spent on charitable causes, and therefore everyone, whether that be trustees, employees, volunteers, beneficiaries, and the general public, have a part to play in the fight against charity fraud.

Fraud does not just impact larger charities. The whole sector is and will remain vulnerable, and so 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. This includes advice on adopting the eight guiding principles of good counter-fraud practice.

1. 1. Fraud will always happen

   No matter the size of your charity, no matter the expertise of your trustees and management team, no matter what controls you have in place, even the most well-equipped of organisations are unable to prevent all attempts of fraud. It is therefore important to acknowledge the risk of fraud, and the harm it can cause, thus allowing you to prepare your charity to counter the threats posed.

   Fraudsters do not care that your charity is not a profit-making body, and they do not care about the good work you provide for the benefit of those in need. Charities are just as likely to be targeted as corporate bodies are.

2. 2. The evolving threats

   Regular fraud prevention and awareness training is vital for all trustees, employees, and volunteers. It is crucial to learn about fraud threats, and how they continually evolve, in this digital world of ours. Charities must always remain prepared and resolute.

3. 3. Prevention over cure

   Prevention is far better than cure. Systems and controls should be agreed and implemented. They should be reviewed regularly, to enable defences to be adapted, providing charities with the ability to respond quickly, and appropriately, should issues come to light.

   Financial loss and reputational damage can be significantly reduced by having effective prevention methods in place. It is far more cost-effective to prevent fraud in the first instance, rather than ascertaining how a fraud has occurred, and understanding how to remedy the damage that has been done.

4. 4. Scepticism must outweigh trust

   Whilst trust and goodwill are fantastic components of the charity world, that we would never wish to be without, they can easily be exploited by fraudsters. A strong counter-fraud culture, including robust whistleblowing and reporting procedures are key, and should be frequently and widely communicated amongst the entire team. This promotes knowledge and a willingness to be able to challenge any unusual behaviours and activities that may be observed.

5. 5. Find it to fight it

   In a strange way, discovering fraud can at times be a good thing. To fight fraud, you’ve first got to find it. Encouraging charities to engage openly and honestly about the subject of fraud is a good way to deter potential internal fraudsters and prevent them from benefitting from their illegal activities.

6. 6. The importance of reporting

   Fundamental to the processes of preventing fraud, is ensuring that all identified frauds, regardless of their size or nature, are appropriately reported to the police and appropriate regulators. This helps not only to strengthen the resilience of your own charity but contributes to combatting fraud in the wider sector too, demonstrating to fraudsters that they will not be granted a free hit at targeting our sector.

7. 7. Systems and controls

   A strong set of systems and controls are a necessity for organisations, regardless of how big they are or what they do. However, without communicating these to the wider team, they are worthless, and so charities must ensure that everyone knows the rules and regulations that must be adhered to, by everyone, at all times.

   On top of this, due diligence checks are a great way to vet new starters, and volunteers, snuffing out potential dangers at the earliest opportunity.

8. 8. One vs. fraud

   It is not just the trustees’ job to fight against fraud. It is not just managements job to fight fraud. It is not just the employees’ job to fight fraud. Everyone associated with the charity, including volunteers and beneficiaries, form a core part of the desire to stop fraudulent activities.

   Saying this, by nature of their role in the organisation, trustees must ensure that they are actively managing fraud risks, to take confidence, and be able to look at themselves in the mirror and say that they have done all they possibly can to put in place the structure required, to best defend the charity from those whom which to do it harm.

   In summary, the public and other donors give money to enable charities to achieve their charitable purposes and aid those in need. Public trust and faith in the Not-For-Profit (NFP) sector relies upon charities taking proportionate steps to protect themselves from fraud and financial abuse, promoting the importance of good governance.

   The sector must work as one strong and secure unit, to keep funds where they should be, in position to provide as much benefit as possible to their beneficiaries, who in these ever challenging times, need the help perhaps more than ever before.