6 ways to minimise fraud in your charity
Fraud cases involving charities seem to be reported on a weekly basis. From 2010-11, 'serious' fraud cases reported to the Charity Commission nearly doubled.
Included in these incidents were 371 cases of fraud and theft valued at £6m. Fraud is estimated to cost the charity sector in England and Wales around £1.3bn per year, according to the National Fraud Authority. As some cases are likely to go unreported or undetected, the real figure is probably even higher.
Many charities avoid discussing fraud, perhaps believing that it suggests a lack of trust in their volunteers. However, it should be a clear duty for trustees to clearly communicate the message that fraud is a criminal offence and will not be tolerated. Having clear policies in place - including details of the meaning of fraud, how the charity plans on detecting it, and how it will respond to it - will mean you are doing all you can to minimise fraud within your charity.
Whilst you can never completely eliminate fraud, the introduction of these processes can protect you and help minimise the risks.
1. It is crucial to be aware of why fraud happens in the first place. Ask questions such as
- Are there any weak financial controls in place?
- Are audits thorough enough?
- Is access to sensitive areas of the charity (everything from accounting records to safes) tightly monitored?
- Are there any possible pressures coming from third parties or incentives from personal circumstances?
2. Charities tend to be more vulnerable if they are funded through cash donations, which can be more difficult to track, and if they rely on volunteers and goodwill. Using temporary employees - especially in the finance department - can mean they are vetted insufficiently. Insurers have seen a significant rise in the number of employee/volunteer theft related claims; always take time to properly go through CVs, making sure all information is accurate and true, and contact all references provided.
3. Ensure that controls are led 'from the top.' Senior members of your charity should carry out fraud risk assessment, including both prevention and detection methods. Prevention would include clear training and clarity of roles. Detection would involve monitoring the authorisation process; who has the authority to bank funds and make purchases? Occasional spot-checks on cheques and invoices are a good fraud deterrent.
4. Ensure that even those in senior positions are subject to checks. A high percentage of charity fraud is carried out by those who understand system weaknesses best, and these are often people in management positions. Introducing sign off processes, such as countersigning, can help to prevent would-be fraudsters taking advantage of your charity.
5. Have a policy in place regarding whistleblowing within your charity. Fraud is detected largely through others raising voices of concern, so make sure that employees have guidance and clear procedures to follow regarding who they can talk to in strict confidence.
6. Have an 'action plan' in place for how to deal with fraud if it arises. This means thinking about how you would report fraud to the Charity Commission, Action Fraud and, of course, the police. The plan should also involve HR who would play a vital part in the event of fraud - they would ensure all legalities are in place and interview potential witnesses.
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