Charity fraud primarily caused by lack of controls, says Commission

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The Charity Commission has published a report suggesting that most charity fraud cases are enabled by the organisation having a lack of appropriate controls.

The Commission also analysed a sample of 20 charity fraud cases and found that in 19 of these, an absence of appropriate controls was the primary enabling factor.

It says these findings were “unexpected” as they contrasted to similar analysis by the Commission in 2016, which found that controls were usually in place at charities hit by fraud but they were not consistently applied.

The report says: “Taken in combination, the two studies strongly suggest that trustees should ensure that counter fraud controls are both in place and being consistently applied. Otherwise, charities are not adequately protected from harm.”

Reported incidents

The report says the regulator also received 54 responses from charities that had experienced fraud to a call for information.

It found that one fifth of the cases reported by these charities to the Commission, Action Fraud or the police had led to a prosecution, while two-fifths resulted in some or all of the money or assets stolen being recovered.

The Charity Commission expressed concern that 38 per cent of the cases were not reported to Action Fraud and 43 per cent were not reported to the Commission.

It said in the report: “Timely reporting, involving full and frank disclosure, information sharing and sector oversight are all vital tools in building a picture of insider fraud risk; new and emerging trends can then be identified and the wider charity sector alerted to prevalent threats.”

‘Excessive trust’

Of the 54 responses, by far the most common reason given for a fraud occurring was “excessive trust or responsibility placed on one individual”.

Lack of challenge or oversight and absence of or poor application of appropriate controls were other commons given reasons.

Michelle Russell, director of investigations, monitoring and enforcement at the Charity Commission, said: "Today’s report has confirmed what we already suspected from our casework in this area.

“The crucial lesson for charities isn’t about introducing lengthy counter-fraud policies. It’s about changing people’s behaviours and encouraging staff and all those involved in charities to be vigilant and speak out when things don’t seem right. This must be demonstrated by everyone in an organisation to be truly effective.

“The vast majority of charity workers do incredible work but, as we’ve seen in some troubling cases recently, sadly charities aren’t immune to fraud. A dangerous combination of a lack of accountability and controls not being consistently applied can make any charity – big or small – vulnerable, and create opportunities for fraudsters that will have devastating effects.”

 

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