Fraud In Charities

A recent study suggested that the majority of charities hadn’t considered the risk of fraud in their operational & financial activities. Given that charity trustees have ultimate responsibility for any such loss that might occur, I thought it might be worth drawing your attention to some of the risks and actions that might be taken to prevent or limit the risk of fraud.

Studies have also shown that all organisations are vulnerable to fraud; all it requires is someone with opportunity and motive. Good & robust internal control systems will help reduce the scope and opportunity and increase the likelihood of early detection but no system is entirely fool proof.

But those studies have also demonstrated that frauds are most typically carried out by individuals who are greatly trusted and take advantage of some basic flaw in financial controls, perhaps most especially in smaller organisations, less able to segregate duties.

Charities can suffer disproportionately from the risk of fraud for a number of reasons. Misplaced trust in employees or volunteers and inadequate training can lead to problems.

Equally, a lack of basic financial controls and insufficient control of assets may mean fraud goes undetected. There may also be inadequate management information and monitoring by Trustee bodies. Although they may not be in the business of direct service delivery, grant making trusts are similarly not immune to such risks.

As even a well-managed charity can be exposed to fraud, how can this risk be reduced? I have attached some notes which I hope will give some flavour as to the type of activity that might result in misappropriation, and the defences against this.

To some degree, these are all common sense, but it is a particularly unfortunate feature of frauds that indicators were there with hindsight, often allowed to carry on through excessive trust of the individual concerned.

If you want, we can assist for instance by carrying out an in-depth review of your internal control systems, testing them both for robustness and to ensure that they are being complied with. If you want to discuss this further, do give us a call.