Fraud & Financial Crime Risks in the UK Charity Sector

The Charity Fraud Awareness Week runs from 18 - 22 October 2021 with the aims of raising awareness of fraud risks across the sector and identifying effective prevention measures.

It is particularly important for charitable organisations to be aware of fraud and other financial crime risks given that they routinely manage large amounts of money including following fundraising initiatives. It is of course vital that the public trusts that charities can manage funds safely and that they are used for charitable purposes. Helen Stephenson, chief executive of the UK Charity Commission, explained the concern:

“We cannot afford for charitable work to be disrupted by criminals. When fraud hits charities, its impact is felt far beyond the balance sheet – it is people that are let down, often hard-working volunteers or people in desperate need.”

Fraud risks in the charity sector

In the UK, fraud is a crime and covers a range of conduct including the deliberate use of deception or dishonesty to cause disadvantage or loss.

Charities should be aware of a range of fraud risks including:

Individuals posing as being associated with the charity and seeking donations from members of the public for personal gain.
Individuals and organised crime groups creating false charities and retaining fundraising proceeds.
Unauthorised access to the charity’s bank account by a senior officer / employee / volunteer leading to unauthorised payments. For instance, in April 2021, Colin Nesbitt, the founder of Little Heroes Cancer Trust was imprisoned having fraudulently transferred more than £200,000 from the charity's bank account into personal accounts.
Third parties extracting payments from charities through, amongst other things, false invoices.

Fraud in the current climate

In the current economic climate, the risk of fraud increases. The reasons for this include:

Charities have, like other organisations, focused on managing their way through the pandemic and financial crime prevention may have slipped down the priority list. That may continue to be the case as we navigate away from the pandemic.
The increased reliance on technology creates further opportunity for frauds by electronic means.
Working from home poses challenges for the effective supervision of employees / volunteers and increases the risk of internal fraud.
Financial hardship creates a motive for fraud.

Steps to manage the risks

In Scotland, the OSCR guidance on fraud prevention and subsequent update on fraud risks in the current climate explain that charity trustees are responsible for the prevention and detection of fraud. Top level commitment to addressing the risk of fraud is therefore expected by the charities' regulator.

As the guidance explains, the starting point is a thorough risk assessment to identify vulnerabilities. The risk assessment process may identify a need to:

Develop a comprehensive and robust anti-fraud policy.
Provide training to employees and volunteers on unacceptable conduct to help them identify fraud concerns.
Establish policies and procedures by which concerns can be reported and investigated.
Implement a system by which all proposed payments to be made by the charity are subject to review and approval.
Develop a system for stress testing and reviewing the compliance approach on an ongoing basis. Implement required updates and document those updates.

Fraud and financial crime will continue to impact UK charities. Effective fraud prevention measures are vital to protect charitable funds and to help maintain public confidence in the sector.