Awareness essential in tackling charity fraud

Protection against fraud use

Euan Morrison examines how serious an issue fraud is for the voluntary sector

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16th October 2019 by TFN Guest 0 Comments

The 21 to 25 October is Charity Fraud Awareness Week (CFAW), an event that brings the charity and not-for-profit sector together to raise awareness and share good practice in tackling fraud and financial crime.

According to the Charity Commission, estimates of the current level of fraud within the sector vary greatly between £150 million to almost £2 billion per year. Whatever statistics you apply, there is little doubt of the severity of the problem within an increasingly digitalised sector.

As advisers working with a range of charity clients, we have an awareness or experience of the many frauds to which charities can be exposed. Examples include double counting of expenditure on restricted funds being reported to funders, the raising of fictitious invoices as part of an insurance claim in collusion with a third party, and the deferral of income within statutory financial statements to hide the true level of reserves and repayments that may have to be made to funders. Supplier payment fraud, where bank account details are changed to channel money to an individual rather than a bona fide supplier, is also common as are less sophisticated frauds including the theft of cash from an office safe.

Many of these are internal forms of fraud where funds are expropriated by employees or volunteers within a charity. An analysis of a sample of frauds within the sector was carried out in 2016 by the Charity Commission. It showed that approximately a third of these were perpetrated by ‘insiders’.

You don’t need to look too hard to find examples. In June, Dale Hicks, a volunteer at charity Life Keys, was jailed after more than £270,000 of its funds were diverted into his own bank account and used for luxury holidays. Last year Lesley Dickinson was jailed for a double fraud which included abusing her role at the Scottish Wildlife Trust by duplicating invoices and depositing payments into her own accounts. Between September 2015 and March 2016 she embezzled more than £35,000 from the charity.

Euan Morrison

Euan Morrison

Cybercrime is another significant issue facing the charity sector. UK Government figures from April 2019 claimed that 22% of charities had reported being subjected to a cyberattack or other form of breach over the previous year.

The responsibility for addressing fraud, including internal fraud and cybercrime, sits firmly with a charity’s board of trustees who are legally bound to understand where their organisation is vulnerable and effectively manage any identified risks. Failure to comply could result in misconduct proceedings from OSCR if they are trustees for a Scottish registered charity. Their charity is also liable for regulatory penalties for cyber or data breaches which can be as severe as fines of up to £18 million under GDPR.

The focus provided by CFAW to promote awareness and understanding of the size and scale of fraud within the charity sector is a welcome step in addressing the issue. Charity trustees need to take note, engage in the programme and ensure they are taking appropriate advice to stem the threat it poses to their organisations.

For more information on how to help prevent fraud in your charity, visit https://www.fraudadvisorypanel.org/charity-fraud/charity-fraud-awareness-week/

Euan Morrison is head of charities at Chiene + Tait Chartered Accountants