Insider fraud is biggest threat to third sector finances

Fraud

Charities are seen as an easy touch by criminals 

16th May 2018 by Robert Armour 0 Comments

Third sector organisations have become big targets for financial crime with 43% of insider fraud cases in the last five years not reported.

A Charity Commission report says the £76billion turnover of the UK sector has made it attractive to criminals with insider fraud the greatest threat.

The vast majority of insider fraud cases (nearly 70%), occur because too much responsibility is placed on one individual.

In almost half of cases (43%) this individual is an employee of the organisation, and in over a third (33%) it is a trustee.

A lack of oversight by the organisation is blamed as the main reason fraud is able to take place alongside the absence or poor application of controls by the organisation’s trustees.

The report recommends larger charities should consider appointing a trustee with specific responsibility for risk management and preferably knowledge of counter fraud, which would prioritise the issue at board level.

But all trustees and staff should have an awareness and be responsible for implementing fraud policies, the report states. The commission recommends organisations adopt a strong counter fraud culture, which is established at the top and filtered down.

This should empower staff and volunteers to raise their concerns about fraud and take the right steps to report any incidents to the authorities such as Action Fraud, the police and the Charity Commission.

In the report, it highlights the case of a finance director who defrauded a charity of £900,000 over a seven year period, which only came to light after the director had been made redundant.

The charity trustees reported the matter to the police and the ex-director was charged with five counts of theft and one count of fraud by abuse of position.

Effective action was taken by the organisation with a new finance committee established, which meets every month. The committee included the chair of trustees and two other trustees, one of whom is a qualified accountant to prevent a repeat of the fraud.

The charity’s ex-director was convicted of 2 charges of fraud and was sentenced to 6 years imprisonment.