Fraud Advisory Panel & Charities Commission Report Into Charity Fraud

In 2009, the Fraud Advisory Panel, with the support of the Charities Commission, undertook the most extensive review of fraud in the charity sector to that date. The outcome of that review showed a bleak picture for charity fraud with few charitable organisations having either training or systems in place to spot or prevent fraud from taking place.

Last year, the Fraud Advisory Panel and Charities Commission reviewed and updated their original findings (a copy of the full report, entitled ‘Preventing Charity Fraud: Insights and Action’, can be found here). Whilst there had been some improvement in the sector over the 10 years since the original report, there were still shortcomings.

Preventing Charity Fraud: Insights and Action report – An overview

The report estimates that:

• 68% of charities had been adversely affected by fraud in one way or another;
• 24% of charities confirmed that fraud had resulted in reputational damage (but only 6% noted adverse publicity as a result of fraud); and
• 13% of charities noted a reduction in charitable activities as a result of fraud.

When set in the context that charities spend £80 billion each year, the above figures do create reason to be concerned. Clearly in all scenarios, prevention is better than a cure. With this in mind, it is very surprising to read that less than nine per cent of charities had some form of fraud awareness programme. Whilst it is appreciated that such training programmes cost money, the likelihood of spotting fraud before it occurs as a result of such training could well result in a significant return on investment.

With prevention in mind, the report sets out eight principles of good counter-fraud practices as follows:

1. Fraud will always happen – being a charity is no defence;
2. Fraud threats evolve;
3. (As stated above) Prevention is better than a cure;
4. Trust is exploited by fraudsters;
5. Discovering fraud is a good thing;
6. Report every individual fraud;
7. Anti-fraud responses should be proportionate to the charity’s size, activities and fraud risk; and
8. Fighting fraud is a job for everyone.

Whilst the above matters are startling, the report does note that over half of the funds lost to fraud were in fact recovered. This is probably because the report also found that over half of the perpetrators were known to the charities affected.