International Charity Fraud Week - The scale of Fraud

There have been numerous surveys published that have attempted to estimate the impact of fraud on the charity sector, ranging from hundreds of millions to several billions.  The truth of the matter is that no one really knows the exact scale of the issue, however anyone who has worked within the charity sector will be in no doubt that fraud is a major problem.

Fraud is an issue that effects the whole of society.  One recent Government survey stated that the national cost of fraud equated to £3,900 per adult in the UK, with losses taking place at a rate of £6,000 per second.  The impact of fraud on this scale can undermine many of the links that help to bond our society together.  It has been estimated that procurement fraud – which includes awarding contracts in exchange for bribes – involves transactions totaling £127 billion.  Contracts being fraudulently awarded on this scale can damage profitable businesses and successful charities, resulting in a less efficient and less fair society for all of us.

The charity sector is not immune from any of the different types of fraud but those we are most likely to hear about are cyber frauds.  These include phishing scams, identity theft using malware, mandate fraud using emails, banking frauds, and the list goes on.  Awareness of these types of fraud has increased massively over the last decade which means that we are no longer surprised to receive an email telling us that we have won a prize and we just need to share our bank details to claim it, or asking if can we make a quick payment on behalf of the CEO.  As we are exposed to these attempted frauds we are much better placed to resist them – but there is always a new scam coming around the corner.    

The increasing level of fraud awareness has meant that charities now give fraud prevention a higher level of priority, with over two thirds of all charities considering it to be a major risk (compared to half 10 years ago).  However there are some concerns that charities may not be focusing their efforts in the right places.

It has been suggested that fewer charities are now falling victim to frauds, and enhanced cyber security is the primary reason for this.  However, the majority of frauds are still committed by people who are known to the organisation, either as employees, trustees, volunteers, fundraisers or beneficiaries, and few charities have taken many steps to address frauds of this nature.

In a recently published Charity Commission report it said that only 30% of charities had a whistle-blowing policy.  The most common way for internal frauds to be picked up is via a whistle blower, and so I am always surprised at how many charities don’t have a policy in place, or where they do, they make little attempt to ensure that staff know what it is and how they can report concerns.

The weakest point in any control environment is almost always a person and so knowing your staff and ensuring that they are adequately trained is one of the best fraud prevention measures any organisation can take.