With fraud costing UK charities up to £2 billion a year*, it’s becoming increasingly important for charities to protect themselves against both internal and external risks. Unfortunately, despite all the good they do for the community, charities can be particularly vulnerable to fraudulent behaviour, and as a result can suffer from loss of funds and reputational damage.
Fraudulent activity can take many forms, including the following:
If you think that your organisation may have fallen victim to fraud, report it by visiting www.actionfraud.police.uk, or calling 0300 123 2040. The Charity Commission should also be made aware if there is any evidence of fraud that could seriously harm the charity, its beneficiaries or assets. Reporting serious incidents (including fraud) to the Charity Commission is a requirement for trustees.
Whilst charities thrive due to the passion of their staff and volunteers, they also tend to have a slightly higher staff and volunteer turnover. Charities may also find that staff levels increase exponentially over short periods for key campaigns or events. Whilst having short term staff is largely beneficial for a not-for-profit organisation, it may also increase the risk of internal fraud from unknown or short-term employees. It’s important that steps are taken to protect against this increased risk.
As well as internal fraud, charities should also be aware of the risk of external fraud, which could include false invoicing, unauthorised fundraising and credit card scams. There are a number of ways in which external fraud can be mitigated:
Have robust financial controls, and a strict invoicing process in place. Assign an invoice owner who can verify that the services or goods have actually been received. The invoice owner should be consulted before the invoice is paid.
Take appropriate steps to prevent any unauthorised fundraising, and ensure that all donations are then passed on to the charity.
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