Addressing fraud risks in the not-for-profit sector

It is not hard to find news stories relating to fraud perpetrated against charities by both internal and external fraudsters. Charities can be seen as easier targets as they are built on a foundation of goodwill and trust and also often operate in some areas using volunteers who may not be as aware of the controls and procedures in place.

This was exacerbated by the pandemic as a result of increased demand for services, reduced staff capacity due to illness and furlough and the move to home working. There are also further risks resulting from funds being raised to support Ukraine.

What is the impact of fraud on a not-for-profit business?
According to data released by Action Fraud in October 2021, charities lost more than £8m to fraud in the last year.

The impact of fraud is not just the loss of funds. There can be reputational damage, an impact on future funding and also on staff morale.

Given all this, it is important that fraud prevention remains an issue to be considered by both staff and Trustees.

What is fraud prevention?
The Fraud Advisory Panel recently published a survey which found that 14% of respondents do not invest financially in fraud prevention. As with many things, the culture of the charity will be important as the first stage in fraud prevention.

Clear controls and procedures and an established fraud policy will ensure everyone is clear on the risks and also the reporting framework.

The Charity Commission has issued guidance for Trustees which includes a number of questions Trustees should consider.

These include:

Do we understand what ‘normal’ looks like?
Do we promote fraud awareness and understanding?
Do we conduct an annual fraud risk review?
Do we have an anti-fraud policy and code of ethics?
Given the risks, it is important that Trustees look at fraud risks regularly, particularly when undertaking a new activity.

Regular review of controls and procedures in place to ensure they are fit for purpose, particularly with new ways of working is also key.

Can MHA Moore & Smalley help?
The speed with which fraudsters develop new schemes is staggering and they are becoming ever more imaginative and sophisticated. Charities will need to keep up to protect themselves and their service users from loss.

If you would like to discuss this further please contact a member of the Charities team here