Two thirds of charities see fraud as major risk

The Charity Commission is warning that while 69% of charities see fraud as a major risk, just 9% have training programmes highlighting the issues, at the start of a week of activities designed to heighten awareness of the ways to reduce fraud risks

The regulator has published the results of a research study about fraud awareness, resilience and cyber security based on over 3,300 organisations, its largest response ever on the topic.

Over two thirds of charities (69%) think fraud is a major risk to the charity sector, compared to 51% in the previous survey ten years ago.  A third (33%) think fraud is a greater risk to the charity sector than other sectors (25% in 2009).

This year’s survey found 85% of charities think they are doing everything they can to prevent fraud, but almost half do not have any good-practice protections in place. Under a third (30%) have a whistleblowing policy (18% in 2009), and only 9% have a fraud awareness training programme (4% in 2009).

Charities believe they are vulnerable to fraud because of a lack of fraud awareness training (28%), an over-reliance on goodwill and trust (26%) and/or excessive trust in one or more individuals (22%). However, nearly half (48%) believe they are not vulnerable to any of the most common fraud enablers.

The most common types of charity fraud are identified as internal fraud (21%), external fraud (20%), fundraising fraud (14%) and beneficiaries fraud (8%), but over a third (34%) of charities do not believe their organisation to be vulnerable to any of these.

This year’s survey found 4% of charities have suffered at least one fraud in the past two years, compared to 7% in 2009, but the Commission suggests the lower figures indicates fewer frauds being reported rather than a drop in fraudulent activity. Mandate/ CEO fraud (18%) and fraud relating to abuse of position (12%) were the most common types of fraud suffered.

Of those charities that had suffered a fraud in the last two years, over half (53%) knew who committed the fraud (49% in 2009). Where the identity of the fraudster was known, 29% were paid members of staff (40% in 2009), 18% were volunteers (11% in 2009), 13% were beneficiaries (5% in 2009) and 10% were trustees (3% in 2009). Only 14% of fraudsters had no previous connection to the charity (11% in 2009).

The majority of frauds (66%) were identified as a result of financial controls at the charity or by internal or external audit (46% in 2009). In comparison, fraud was revealed by whistleblowing in 17% of cases (9% in 2009), in 9% of cases by accident (9% in 2009), 6% by data matching and only 1% by bank notification (18% in 2009).

The Commission says the gap between awareness and practical action poses a threat to charities’ valuable funds, and to public trust and confidence in the sector. The proportion of charities stating that fraud had resulted in some sort of adverse impact has leapt from 27% ten years ago to 68% currently.

The regulator is calling on trustees, employees, volunteers and the wider public to learn more about the growing threat from fraud, and best practice, during international charity fraud awareness week, which runs from 21 to 25 October.

Charity Fraud Awareness hub is here.

Preventing charity fraud: insights and action report is here

By Pat Sweet

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