According to one report, fraud committed in charities is estimated to cost about £1.9 billion a year. That’s a big number in any sector but, for charities, this is an extremely worrying number. It demonstrates the need for charities to take steps to help prevent fraud in your charity. We have broken this brief guide down into three key areas.
A culture of ethical behaviour is key to combating fraud. Culture is developed from behavioural norms and values and your organisation’s leadership. So, as well as leading by example, you create this culture by promoting, supporting and teaching ethical values. You may choose to promote a ‘blame-free’ culture, so staff feel free to report concerns and whistle-blowers should be protected and the reporting process formalised. Which leads nicely into…
Strategy & Policy
A strategy to address fraud should outline the processes for preventing (and reacting to) any instances or concerns. Your charity fraud strategy may include a risk register to document potential activities or departments that are more likely to facilitate fraud and should explain how your policies – as well as any other solutions you have implemented, such as insurance – will work to protect your organisation.
Policy is vital to formalise and legitimise your organisation’s stance on fraud. You should also make clear the repercussions of involvement in fraud, which is likely to include disciplinary action and/or reporting to authorities. Ensure that these policies are clear, understood and readily-available to your employees, volunteers, officers and leadership. You may also either have an internal process for whistle-blowing or recommend whistle-blowers contact an organisation such as Crimestoppers to report fraud concerns anonymously.
It is likely that fraud will feature on your charity’s general risk register and risk assessments; however, you may decide to investigate this issue with its own risk register. One approach to doing this is to map out your income and expenditure routes and work from this map to identify areas where fraud, theft of corruption could occur. Then follow the risk assessment process and consider the impact each risk could have and how to reduce or remove the risk.
Financial controls are one of the most important ways that trustees can protect their charity against fraud and they are a key tool for ensuring you meet your legal obligation to safeguard your charity assets. Some basic controls that you may wish to implement include cashing cheques and cash immediately; scheduling regular checks to ensure income records and bank accounts agree; require at least two signatures on outgoing cheques and enter details of cash payments into a petty cash book.
You may find that insurance is the most suitable response to certain risks. For example, Fidelity Insurance for charities can provide cover in the case of fraud or theft by a trustee, employee or volunteer. A specialist charity insurance policy should give you the option to purchase this cover.