Charity fraud: What can be done to reduce the risk?
by Shoosmiths LLP
In the latest report published in December 2022 by the Fraud Advisory Panel in conjunction with BDO LLP, 100 UK based charities were surveyed. 69% said that they had experienced financial loss due to fraud. 58% said they believed that the risk of fraud will increase over the next 12 months. But why is the risk of charities becoming the victims of fraud increasing?
A recipe for risk
Fraud increases in times of economic uncertainty and with a potential recession on the way, inflation, the cost-of-living crisis, political and economic unrest, and the wounds of a global pandemic to heal the advice to charities is simple – invest in your fraud prevention.
How should charities protect against fraud?
At this time of economic uncertainty, charities are stretched like never before. Investment in a charity’s fraud prevention reduces the risk of vital funds being diverted into the fraudsters’ pockets and away from where they are needed most. Here are our 5 top tips for helping to prevent charity fraud.
- Carry out a fraud risk assessment. A risk assessment will help your charity to consider your current investment in fraud protection and help you understand which parts are most exposed to the risk of fraud. Through the implementation of a fraud risk assessment your charity will be able to agree a clear and strategic approach to managing the risk of fraud.
- Carry out fraud awareness training for all staff. Staff and volunteers are a charity’s first defence against fraud. It is essential that they can recognise suspicious activity which could leave you at risk of fraud and where they can report suspicions discreetly and with confidence.
- Implement or refresh policies and procedures in relation to fraud prevention. Make sure your charity’s message is clear - that fraud is not tolerated, either internally by staff or volunteers or externally.
- Sometimes described as ‘tone from the top’, encourage your charity’s senior management team to lead on fraud risk management and proactively discuss the risks and how to reduce them.
- Put in place a fraud response plan. Once staff and volunteers know how to report suspicions of fraud, there needs to be a clear plan of action. This includes possibly reporting to the Charity Commission (see below), law enforcement, other regulatory bodies if necessary and if there is a suspicion of money laundering, submitting a Suspicious Activity Report (SAR) to the National Crime Agency.
What should charities do when they discover fraud?
Carry out their fraud response plan. Advice can be sought where appropriate, including on securing evidence and protecting assets. Speed will be of the essence.
How can Shoosmiths help?
Our multi-disciplinary and specialist charity law team supports charities and other-not-for profit organisations with a wide variety of areas including, legacy disputes, charity law, governance and regulation and employment.
We can assist charities in dealing with fraud and financial crime. We regularly undertake internal investigations on behalf of organisations. We can also ensure charities are protected by reviewing and updating existing policies and procedures and advising on the drafting of bespoke policies to be implemented within a charity, including those covering anti-money laundering, bribery, anti-facilitation of tax evasion and whistleblowing.
And if things go wrong, we operate a 24/7/365 incident response service tailored to respond to a full range of operational emergencies by providing urgent legal assistance. SHOC 24 (shoosmiths.co.uk)
We can also assist and advise on a charity’s reporting obligations. In the specific context of charities receiving legacies in wills and which encounter possible fraud during the administration of an estate, on 9 March 2023 and in conjunction with the Institute of Legacy Management our charity team will deliver an hour-long webinar legacy fraud and serious incident reporting.
A reportable ‘serious incident’ is defined by the Charity Commission as any adverse event, whether actual or alleged, which results in or risks: significant harm to a charity’s beneficiaries, staff, volunteers or others who come into contact with the charity through its work; loss of a charity’s money or assets; damage to its property; or harm to its work or reputation.
We will address key questions including whether issues should be reported to the Commission and if so, by whom and to what end, and what happens if they are not reported.
You can sign up to the webinar here.