Charity fraud – an ounce of prevention is worth a pound of cure

June 8, 2012 at 13:12

Last week we launched our Charity Fraud guide, along with the Fraud Advisory Panel’s (FAP) Safer Giving guidance for donors, at a special breakfast seminar event.  We easily secured the first three speakers, from the FAP, National Fraud Authority (NFA) and Charity Commission, however the fourth speaker – a charity who had experienced fraud and was willing to talk about it – proved somewhat more difficult to find.  Few suitable names sprung to mind and even fewer that we thought might be willing to stand up and share their story.  Just organising the fraud event was indicative of the challenges associated with addressing fraud in the sector: it’s hugely sensitive topic and one that charities are unwilling to discuss openly. 

However, we know fraud happens in charities – last month the former finance director of the Royal Academy of Music was jailed for defrauding the charity of £236,000, mainly by submitting false invoices and fake paperwork.  And for our launch event, where we were eventually lucky enough to secure a charity speaker,  Neville Kyrke-Smith from Aid to the Church in Need UK told us how his charity’s website was attacked by fraudsters  - they cracked into the server and circumvented the website’s seemingly tight security controls to siphon off donor money.

Stories like this come up occasionally in the press, along with the more frequent fraud-related stories warning of fake charity disaster appeals or bogus clothing collections.  However, the reality is that fraud against charities is much more commonplace – albeit often much more mundane – than the odd shock story that makes it into the papers.  While it’s impossible to accurately pinpoint the level of fraud in charities, the latest National Fraud Authority estimate is that the sector loses around £1.1billion per year to fraud – approximately 1.7% of its total income.  And a report out today shows that more than a quarter of the calls from the voluntary sector to the charity Public Concern at Work, which provides support to people concerned about wrong-doing in the workplace, relate to fraud in their charity.

While there isn’t a big charity fraud problem by any stretch of the imagination, the sector could be bolder in its approach to fraud.  Targeted information sharing and greater awareness are pivotal in bringing fraud levels down, however as a sector we tend to shy away from discussing the topic openly.

Charities enjoy and, crucially, rely on the trust and confidence of the giving public.  Yet trust is a fragile thing and there is often the fear that a charity speaking up about fraud could compromise supporters’ and the public’s confidence in their ability to hold and spend charitable funds effectively.  Who wants to donate money to a charity if they think it’s going to slip through the cracks and fund the treasurer’s Caribbean cruise?

While charities don’t necessarily need to shout from the rooftops if they’ve been the victims of fraud, sharing experiences and lessons learned is extremely effective and may help others.  If it’s carefully communicated it shouldn’t compromise donor or public trust either – people know that there is no failsafe way to protect against fraudsters in all circumstances and, as Aid to the Church in Need UK found, speaking out can in fact lead to greater respect and support for the charity. Similarly, the British Red Cross who were victims of fraudulent disaster appeals, now have a link to a fraud advice page on the front of their website.  This, if anything, serves to give donors greater confidence that the charity is aware of the risks and putting steps in place to manage them.

Ironically, trust within charities – while crucial to good team working – can also suppress open discussion about fraud.  Some staff and volunteers may set out to deliberately target charities because they perceive them as being a soft touch or know that being associated with the sector, which is generally viewed as more ethical and moral than others, gives respectability to them or their work.  In other cases it can be as simple as an existing long-standing member of staff who is facing a difficult time financially, taking advantage of an easy opportunity – they may not even view their actions as fraudulent, but merely as temporarily ‘borrowing’ or ‘just taking a bit’ to help tide them over.  Many people overlook warning signs or fail to enforce financial or anti-fraud controls as strictly as needed because they unquestionably assume their colleagues or the people they work with wouldn’t ever commit fraud.

The vast majority of charity employees and volunteers are unlikely commit fraud; however having trust in your colleagues and making sensible checks are not mutually exclusive.  Charities should make sure they discuss fraud openly within their organisations – if a strong anti-fraud culture prevails individuals won’t feel offended if checks need to be made or questions asked.  Setting out a strong anti-fraud position from the outset takes away the ‘awkwardness’ that a number of charities who have experienced fraud have cited as a factor in ignoring warning signs.

So at CFG, we’ve teamed up with 14 other leading sector bodies and agencies to develop a sector wide approach to address and reduce leakages of donors’ money through fraud. Our message to charities is to be bold and brave in preventing and tackling fraud. Accept that it could happen, discuss with staff and demonstrate to your donors that you are putting steps in place to avoid it from happening in the first place.  As Benjamin Franklin once said, an ounce of prevention is worth a pound of cure!