Charities are built on foundations of public trust and confidence. Fraud within a charity undermines that trust and inflicts huge reputational damage, but sadly it is a problem on the rise. The cost of fraud in the charity sector is estimated at £2.3bn in the latest Annual Fraud Indicator report by accountancy firm Crowe UK in partnership with the Centre for Counter Fraud Studies, £400m higher than in the 2016 report.

One of the most common types of abuse of charity funds, as highlighted recently in the media, is internal fraud, with the misuse of charity funds by staff, including senior executives, trustees and volunteers, ranging from putting in false expenses claims to making unauthorised payments to themselves.

To combat fraud effectively, charities need strong leadership and support from their board of trustees, the very people trusted by the public to manage and safeguard the organisation.

“All charity trustees are under a legal duty to manage the resources of their charity responsibly, ensuring their assets are protected, used appropriately and all accounted for,” says Dominik Opaliński, partner in the charity team at Hunters Solicitors. “This entails charity trustees exercising collective sound judgement and taking reasonable steps to develop practical and effective policies and procedures to identify and manage the full range and level of risk facing their charity.”

Prevention by being proactive is always better than a cure. Opaliński adds: “Things still can and do go wrong, but what really matters to potential and existing donors is how trustees respond to put matters right: by acting quickly; following established procedure in accordance with best practice; informing those within and outside of the charity as quickly as possible; and taking steps to preserve all relevant evidence.”

Read the full article in NatWest ContentLive here.

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Dominik also expanded on the topic:

An increasing number of charities are falling victim to some type of fraud or abuse. Recent figures published by the Charity Commission’s Fraud Advisory Panel show that fraud alone is estimated to cost the charity sector £2.3bn per annum.

Sadly, one of the most common types of abuse of charity funds as highlighted recently in the media, is ‘internal fraud’ by employees, misusing charity funds for their own personal gain, ranging from making false expenses claims, misuse of charity credit cards to making unauthorised payments to themselves. Unfortunately, such types of abuse appear to have continued for a period of time before being detected, often by chance.  All of these incidents involve an abuse of authority and trust within a charity. These incidents not only have far reaching detrimental consequences to the reputation and standing of the charity itself, but also undermines vital trust and confidence in the charity sector which so many charity trustees, volunteers and staff have worked tirelessly in an increasingly difficult environment to earn and maintain.

The ability of any charity or benevolent organisation to detect internal fraud very much depends not just upon how robust and resilient the governance and proactive culture of prevention within the organisation may be, but whether all its trustees, staff and volunteers have the knowledge, awareness and skills through effective ongoing training to identify indicators of fraud and how to respond in a serious and proportionate manner. In order to combat fraud effectively, charity staff need and rightly expect strong leadership and support from their board of trustees, the very people trusted by the public to manage and safeguard the organisation.

All charity trustees are under a legal duty to manage the resources of their charity responsibly and make sure that their assets (including the reputation of the charity itself) are protected, used appropriately and all accounted for. This duty to act responsibly is also referred to as the ‘duty of prudence’, that is, a duty to take all reasonable steps within your power as a charity trustee to avoid causing harm or loss to your charity. The Charity Commission of England and Wales provide a range of practical guidance and toolkits for charity trustees in helping them to keep their charity safe from harm, including fraud, details of which can be found on the Charity Commission’s website, together with a free guide to help charities tackle fraud.

In the context of combatting fraud effectively, especially internal fraud, this involves charity trustees exercising collective sound judgement and taking reasonable steps to develop practical and effective policies and procedures to identify and manage the full range and level of risk facing their charity. Risk is not knowing what you are doing or understanding the environment that your charity operates in, how this may change. Trustees need to have a proper understanding of the risks to the assets of their charity in order to develop and implement appropriate countermeasures, which must be reviewed and monitored regularly.

Prevention by being proactive, is always better than a cure. Things still can and do go wrong. What really matters to potential and/or as existing donors in my experience is how trustees respond to put matters right, through strong and clear leadership, by acting quickly, following established procedure in accordance with best practice, informing those within and outside of the charity as quickly as possible while taking steps to preserve all relevant evidence. If in any doubt, take professional advice.

Of the 2,182 serious incidents reported to the Charity Commission in 2016-17, nearly a quarter involved issues of theft and fraud. Charity trustees are expected to know when to make a serious incident report in the case of actual or suspected instances of fraud to the Charity Commission.

In accordance with established Charity Commission guidance, a ‘serious incident’ is an incident that results in or risks significant:

• loss to the money or assets of a charity;
• damage to the property of the charity;
• or harm to the beneficiaries, work, or reputation of the charity.

For more information about reporting a serious incident to the Charity Commission, you may wish to use the following link:

https://www.gov.uk/guidance/how-to-report-a-serious-incident-in-your-charity

Regardless of the size of the charity, or its operational location, good governance, strong leadership and commitment, sound financial management and a culture of openness, internal transparency and support are the vital hallmarks of an effective anti-fraud strategy.

The value of having safeguards such as a clear and accessible whistleblowing process, serves to underpin any strong and resilient anti-fraud culture within a charity, by enabling and encouraging employees to speak up about any concerns they have in confidence, knowing that they will be listened to and acted upon by trustees and/or senior management. These essential components help charity trustees to demonstrate to the public that not only do they know what their duties are, but also that they are managing the assets of their organisation responsibly and in so doing, are serious and effective about tackling in particular, internal fraud.