My small charity is safe from fraud, right?

A recent report published by the anti-fraud charity the Fraud Advisory Panel and accountancy firm BDO shows fraud against charities is on the rise, with 36% of respondents charities saying they had experienced more actual or attempted fraud in the last 12 months.

The sample, while skewed towards larger charities, included smaller charities (around one fifth of the sample was charities with incomes below £1m). Interestingly, the data shows that 50% of fraud incidents result in financial losses of under £10,000. As well as financial losses, 45% of frauds resulted in loss of staff/trustee/volunteer morale and 24% in reputational damage.

Many of our small charity clients tell us that they feel safe because with small numbers of people involved in the charity they know everyone and can trust them. However, 57% of respondents to the report survey identified over-reliance on trust as an obstacle to preventing fraud and half said that the main alleged fraudster in their charity was a staff member, volunteer or trustee, while only 23% said it was someone with no connection to the charity (such as a scammer).

In terms of types of fraud, the most common were:

• Misappropriation of cash or assets (42%)

• Expenses/subsistence fraud (35% - up from 15% the year before)

• Payment fraud (33% - up from 19% the year before)

• Supplier/procurement fraud (25% - up from 8% the year before)

Cyber fraud only came in at 19% (albeit up from 10% the year before).

All this shows very clearly that small charities are far from immune to the rising threat of fraud.

What is also illuminating is how these frauds were detected with 67% of respondent saying that their financial/internal controls were the main detection method - the next biggest was a whistleblower (13%).

It is, perhaps, not surprising then, that the most common remedial actions after a fraud was to change internal controls (79% of respondents) and change policies (37%)..

Our message, therefore, is that no charity can afford to be complacent about the risk of fraud or the need for effective controls (checks and balances) in their procedures. Every charity needs a good (proportionate) policy framework to help it manage risks more effectively. Just as importantly, those polices need to be put into practice and kept under regular review; they really can help save you time, money and reputational damage.

To find out more about the governance support and training we offer, including help to develop policies and procedures, please contact us at julian@almondtreeconsulting.co.uk to arrange free initial telephone discussion.