Is My Charity Susceptible To Fraud?

Many charities feel that fraud is something that won’t happen to them, however The Charity Commission sees an element of fraud or theft in nearly 25% of its compliance assessment cases. When we say fraud we are talking about an ‘act of false representation’ of failing to disclose information or someone abusing their position.

Fraud can affect charities of any size but can be particularly devastating in smaller charities and is often, on investigation, found to be down to poor controls, mismanagement, or negligence.

Some examples of how charities can be affected by fraud include:

• Misuse of the charity’s bank account
• Fraudulent transactions using the charity’s credit/debit card or cheque book
• Stealing money from cash collections
• Theft from charity shops
• Fake grant applications
• Creating false invoices or purchase orders
• Claiming provision of services for beneficiaries who don’t exist
• Using the charity’s databases or records for personal profit or unauthorised private commercial use

Protecting charities from fraud

A key way for charities to protect themselves against fraud is to have strict and robust internal controls and policies in place and to review these regularly.

When setting your internal controls you should consider where the greatest risks are to your specific charity and how to combat these. For example, if you are dealing with a lot of cash, is it always under the control of two unrelated people and logged immediately? Should your charity receive a lot of donations by way of cheques sent through the post then should the post be opened in the presence of two people and all cheques logged straight away?

You may wish to consider auditing a random sample of invoices or grant applications to ensure all is in order and perhaps even rotate people’s duties to help disrupt any fraud that may be taking place.

All charities would benefit from appointing someone independent to help review their controls. For some charities an annual audit is a legal requirement anyway, and trustees and senior management should consider any weaknesses that the review raises and how best to combat these.

It can also be helpful to have a set policy in place for the reporting of any concerns related to fraud or theft. This will allow you to investigate concerns and also monitor any trends that may develop.

If you do find that your charity has been the victim of fraud then you may need to make a serious incident report to The Charity Commission, depending on the nature, scale and impact on the charity.