Charity fraud on the up, with half conducted by people within the organisation
Melanie May | 27 November 2023 | News
Charity fraud is on the up, according to a survey of 120 charity leaders, with 43% saying their organisations were the victims of fraud over the last 12 months. This compares to 36% the previous year.
In the survey, published today by accountancy and business advisory firm BDO and the Fraud Advisory Panel as part of Charity Fraud Awareness Week, a third said they have experienced more instances of fraud or attempted fraud in the last year. 64% believe the risk will only increase in 2024 as the financial strain on individuals and households increases.
Of all frauds suffered by the charities questioned, 50% were conducted by people within the organisation.
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On average, charities experienced three different types of fraud. The misappropriation of cash or assets by staff and volunteers was the most common (42%), followed by fraudulent staff expenses (35%).
However, payment diversion fraud, also known as push payment fraud, was also high this year, with 33% of charities experiencing this type of fraud. This fraud happens when a fraudster impersonates a supplier by creating or amending invoices to divert funds to bank accounts under their control.
Another significant change noted in the BDO/Fraud Advisory Panel research is the financial impact. For the most recent fraud, nine out of ten charities (92%) suffered a financial loss from fraudulent activity – up from 69% last year.
When looking at the total fraud losses over the last 12 months, the majority (65%) experienced losses under £100,000. However, 23% lost up to £1mn, and 4% saw total losses exceeding £1mn.
Tracey Kenworthy, Counter Fraud Director at BDO, said:
“In tough economic times, fraud risks are at their highest. It is unlikely to be a coincidence that we’re witnessing a growing trend for fraud as the UK endures a cost-of-living crisis. Sadly, in reality, these figures are likely to be just the tip of the iceberg, with so many frauds remaining undetected and unreported.
“While appreciating that so many charities are already stretched, it is important that charities do everything they can to tackle the fraud risks they are facing. The better charities understand their fraud risk and implement measures to prevent and detect it, the better chance they have in protecting against financial losses and severe reputational damage that can impact donor confidence.”
Sir David Green, Chair of Fraud Advisory Panel, added:
“This year’s Charity Fraud Report underlines the need for charities of all sizes to cooperate in the fight against the threats posed by fraud.
“The 2023 survey clearly identifies those threats and underlines the need for collaboration across the private, public and third sectors so that the strength and effectiveness of our counter-fraud defences are maximised.”
Detecting fraud
Detecting fraud is one of the most challenging aspects of a fraud risk management framework, according to the BDO report, and internal controls are the best first defence.
It recommends that charities should:
1) Ensure the control environment is designed with the risk of fraud in mind
2) Carry out regular fraud risk reviews and fraud training to ensure appropriate fraud awareness across the organisation at all levels
3) Develop a clear and robust whistleblowing policy that all staff, volunteers and trustees are familiar with.
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About Melanie May
Melanie May is a journalist and copywriter specialising in writing both for and about the charity and marketing services sectors since 2001. She can be reached via thepurplepim.com.