The use of large up-front fees and disproportionate deposits has already resulted in significant cost consequences for one care provider.
Charities operate in an environment of trust and this trust can easily be exploited at the expense of charity assets if trustees do not ensure that they take adequate fraud prevention measures.
What is fraud?
At its simplest, fraud is wrongful or criminal deception intended to result in financial or personal gain.
There are many different types of fraud, including:
- Tax fraud;
- Fraud by false representation;
- Fraud by abuse of position.
According to a recent report by the Centre for Counter Fraud Studies and BDO, fraud is costing the UK charity sector £1.65 billion a year. Unfortunately, fraud in the charity sector is never far from the headlines and can have a devastating effect on both the charity’s financial situation and its reputation.
Fraud in the charity sector
Charities should be aware that online fraud, in particular, is becoming more prevalent as fraudsters make use of new technologies and find ways to access charities’ valuable information. Charities should ensure that all information is adequately secured and password protected. All electronic devices should be protected with up to date anti-virus software and if the charity sells products or services from its website, all payments should be secure.
Fraud committed by staff accounts for approximately half of all frauds against organisations in any sector and charities are a prime target. When recruiting new members of staff, trustees and managers should take care to ensure that ID is verified, background checks are conducted and references requested. Look out for any unusual behaviour by staff members, which may be indicative of fraudulent activity.
Other examples include fundraising fraud, misuse of legacies, bribery, grants fraud and impersonation of charity workers, all of which trustees and managers should be aware of and have procedures in place to prevent.
Prevention is key
Prevention is far easier than responding to fraud after the event. Having robust policies and procedures in place to guard against fraud, including putting in place organisational controls, internal audit procedures, authorisations and checks, supervision, accounting checks and considering segregation of duties, can help to reduce the risk of fraud to your charity.
The Charity Commission has published comprehensive guidance on this issue, which provides useful advice on how charities prevent, detect and respond to fraud. It is important to remember that trustees have a legal duty to protect charity assets so they must take active steps to prevent against fraud – and, where possible, to take steps to recover funds lost to fraud.
In the event that your charity does suffer an actual or suspected incident of fraud, this should be reported to the police in the first instance and a Serious Incident Report should be made to the Charity Commission as soon as possible.
We will be holding a training session on 14th October in our offices, which will deal with fraud in more detail.
For more information
If you are interested in signing up to the training session in October, please contact a member of the Charities Team on 0121 212 7450 or email@example.com.
This article was co-authored by Will Allen, a Trainee Solicitor in the Governance and Commercial Team.
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