It is often reported that fraud within charities is more likely to take place by an insider than from external sources and this is borne out by recent research from the National Fraud Intelligence Bureau (NFIB).
The principal reasons given for this are poor oversight, a lack of internal control, internal controls not being consistently applied in practice, and too much trust and responsibility being placed in one individual. “Fundamentally there are cultural issues which require a change in mind and behaviour within charities, and this may take time” the report says.
Charities can do more to protect themselves which starts by understanding where they are vulnerable to fraud and putting procedures and processes in place to manage those risks. Charities should have “clear policies and procedures in place for dealing with fraud and should ensure that all staff are familiar with them”. It should also be made clear that “any criminal breaches of policies will be reported to the police and other relevant authorities”.
Key to managing the risk of fraud is to make sure that proper financial controls are in place. Particular areas where focus should be given include segregation of duties, controls over cash including banking arrangements and payments whether in the form of cheque, internet or online and use of credit or debit cards. The Charity Commission has published detailed guidance on this (Publication CC8) including a separate self assessment checklist which is a useful starting point for any charity looking to develop its systems.
“Although the vast majority of trustees, employees and volunteers are honest and act with integrity, research and case studies reveal that without a strong counter-fraud culture and consistently applied controls any charity can fall victim to insider fraud”.
Remember this doesn’t always happen to someone else; it could be your charity.
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