Charities at risk to “insider” fraud
According to Charity Commission research Preventing Charity Fraud: Insight and Action more than half of fraud affecting charities is committed by people known to the organisation. The findings – the result of the largest survey of fraud and cybercrime, covering over three thousand charities – found that:
– Where the fraudster was identified, 29% were paid staff, with trustees and volunteers each committing 28 per cent of the frauds.
– The most common type of fraud was impersonation where an individual impersonates someone else in order to request a change to either a direct debit, standing order, bank transfer mandate or payroll bank account details. Fraud relating to abuse of position was second most common type.
– Less than 9 per cent of charities have a fraud awareness training programme and almost half do not follow good practice for protection against fraud.
– Over a third believe their charity is not vulnerable to any of the most common types of fraud, with 85 per cent saying they do everything possible to prevent fraud. The latter is to some extent corroborated by the 69 per cent of charities that now recognise fraud as a major risk compared to 51 per cent in a similar survey in 2009.
The Commission says that charities are particularly risk of insider fraud because they rely excessively on goodwill and trust in individuals, and predicts that one in 25 charities in England and Wales will suffer fraud in the next two years, with reputational consequences. It suggests three steps to safeguard against fraud:
- Introduce and enforce basic financial controls, for example by having at least two signatories to bank accounts and cheques and undertaking regular bank reconciliations.
- Make sure no one individual has oversight or control of financial arrangements with segregation of duties.
- Encourage staff, volunteers and trustees to speak out when they see something they feel uncomfortable about.