Internal fraud costing the charity sector billions

Fraud has been a topic of conversation in recent years, mainly due to the growing sophistication of fraudsters and our increasing reliance on IT systems. 

Most of the guidance that has been published has been focussed on how to protect your charity from these fraudsters, through better IT security, staff training and enhanced internal controls.

All these measures are very important for any charity to get right, and we should all be taking steps to reduce the likelihood of our organisations falling foul of fraudsters.

An inside job?

However, the advice given often overlooks the risks from within the charities themselves.

We like to think that our colleagues are all trustworthy and have the best interest of the charity at heart, but this alarming risk reminds us of the need to be vigilant and to ensure that our internal controls are not only well designed but are also being implemented as intended.  

These risks are consistent with those faced by any entity, be it charitable or not.

Diversion of funds

The area where charities are uniquely susceptible is with frauds of diversion. This is where money that was intended for a charity was sent elsewhere.

Where income is being donated, then the first that charities may know about this income is when it is received.  Once the donation has been entered into the financial system then it can be controlled and effectively managed – but how do you know what income you haven’t received?

A sensible analysis of the effectiveness of fundraising campaigns, collections and other income generation can highlight individuals or campaigns that have performed less well than expected which can then be investigated, but for smaller charities this can be harder to do.

If your income can be sporadic and you receive irregular, large donations then how would you identify if one was missing?  

Given the challenges that many charities have a raising income they can ill afford to miss out.