Fraud – how exposed is your charity?

Much publicity has been given to benefit fraud over the years and the cost to the public purse.  But the National Fraud Authority (NFA) latest 2012 estimates make interesting reading.   

Fraud within charities is estimated to cost 1.1 billion (1.7% of the sectors annual income) as compared with that estimated to be lost through benefit fraud 1.2 billion (or 0.8% of benefit expenditure).   

Charitable funds are public funds, for which charity trustees are accountable.

The figures do not point to fraud sufficient to dint public confidence in charities and the management and safekeeping of charity funds.  

Putting it into perspective the proportion of the estimated loss is very small.  But the same figures illustrate that charities are not immune to fraud, be it basic methods such as ‘skimming’ off cash collections, online techniques or ever more sophisticated techniques, such as fake fundraising events. 

 

The importance of public confidence to the charitable sector and individual charities cannot be underestimated.  It is critical to public support, whether that be donations, tax relief or volunteering.   That was borne out by the Ipsos MORI survey carried out in 2010 on behalf of the Charity Commission (to be repeated this summer).   

That survey reflected that for 96% of those asked confidence in money given to charities being used for the purposes for which it is given was a key driver.   With that in mind charity trustees would do well to be aware of the potential for financial abuse within their charity and the need to take steps to reduce and mitigate that risk.

Strong internal financial controls, as part and parcel of good governance, are vital measures charity trustees must nurture and sustain to protect charity resources.   

Basic mechanisms like proper record keeping supporting audit trails are a must.   On a practical level, think about whether it is a good idea to concentrate multiple functions with one individual, if that means that their departure potentially leaves the charity vulnerable to playing catch up with financial controls in their absence.

Plainly, this aspect is only one amongst many with which charity trustees have to deal.   Undoubtedly, demands on charity trustees become more complex in this area as in many others; keeping on their radar money laundering and the implications of the Bribery Act 2010. 

 

But, in this area, as with all elements of charity operation, practising good governance is key.   It enables charity trustees to operate the charity on a sound footing and grow the charity safely.  And, critically, it enables them to justify that all important trust and confidence amongst donors, supporters and funders, both new and old.