Charities need clear processes to combat fraud

Hillier Hopkins LLP

Chartered Accountants & Tax Advisers

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Fraud cost the charity sector in England, Scotland and Wales £1.1 billion in 2011, equivalent to around 1.7% of the sector’s £65 billion annual turnover, according to the National Fraud Authority’s (NFA) ‘Annual Fraud Indicator (AFI)’. The impact of fraud on charities’ reputations can lead to reductions in donations, support and income. Incidents of fraud reported to the Charity Commission almost doubled in 2010/11, but according to the NFA, many cases of fraud go undetected so the actual figures could be a considerably higher.

Charities are especially vulnerable to fraud as they typically rely on a small team of staff and volunteers and lack the transparency and rigorous financial controls and procedures necessary to handle large numbers of cash donations and fluctuating incomes.

Charities face the threat of fraud from both inside and outside the organisation. For example volunteers and staff employed within the charity are able to intercept donations or make false expenses claims, while people outside the charity carry out unauthorised fundraising in its name or submit false invoices to obtain money.

Trustees of charities are legally responsible for safeguarding the income and assets of their organisation and must be able to demonstrate that they have taken adequate steps to prevent fraud.  A variety of controls are needed to help charities meet their obligations and tackle fraud. These include having robust recruitment and vetting procedures in place; communicating a clear policy on how fraud will be detected and dealt with; putting financial controls, audit trails and records in place to document how money has been spent and developing a whistle blowing policy to ensure any incidences of fraud are reported and dealt with promptly.

If you are concerned about fraud in your organisation, speak to us. We have a range of services to help you identify potential fraud and minimise risks. Contact Neil Cundale to discuss your concerns and find out how we can help