Preventing insider charity fraud

2nd May, 2018

As the saying goes, ‘Trust is only a five letter word but it can be misused in so many different ways.’

Last week the Charity Commission published the findings of a study which has found that cultural factors, such as placing excessive trust or responsibility in individuals, or the lack of internal challenge and oversight, contributed to 70% of insider frauds within a sample of charities analysed by the Commission.

The report ‘Focus on insider fraud in charities’ urges all charities to foster a culture where staff, trustees and volunteers are reminded of the need to challenge any concerning behaviour and not turn a blind eye when internal processes aren’t followed.

The report encourages charities to learn from frauds that have been committed and to use those findings to help identify emerging risks, long term trends and provide evidence to base specific preventative action on. It includes  anonymised case studies which highlight different examples of how charities can be targeted by fraudsters.

Themes include:

  • Poor or non-application of financial controls
  • Low fraud awareness
  • Excessive trust
  • Lack of challenge.

Some of these examples may sound very basic, and I’m sure most of us would think they would not be fooled in these circumstances, but it is surprising how often the basics are missed. The actions taken by the charities in the case studies demonstrate that relatively straightforward, positive steps can be very effective in strengthening fraud resilience.

Equally important is encouraging a culture of professional scepticism and appropriate challenge where everyone is encouraged to play their part in stopping fraud and to come forward with any concerns, no matter how small.

Charities can protect themselves from internal fraud through the robust and consistent application of financial controls, and the implementation of Commission good practice advice. If you are concerned about any aspect of internal fraud and would like to discuss putting in place better safeguards, then please do get in touch with our Charities and Social Enterprise team.

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