How to protect your charity from the threat of fraud

  • Fraud costs UK charities more than £1bn a year
  • We look at 5 tips to prevent fraud
  • Zurich can help charities fight fraud with our zero tolerance policy

With fraud costing UK charities an estimated £1.65bn in 2014, what can charities do to protect themselves?

Charities can be particularly vulnerable to fraudulent behaviour and with the Crime Survey for England and Wales reporting an increase in fraudulent activity of 9% from June 2014-2015, now is the time to build up your defences.

Fraudulent activity can take many forms – and is both internal and external to organisations. What do you need to know to protect your charity?

How can you protect your charity from the inside?

Charities benefit from passionate and engaged staff and volunteers, but could be susceptible to high staff or volunteer turnover.

They may also experience seasonal staffing level changes, with large increases over short periods for key campaigns or events.

Internal fraud has been demonstrated at all levels of the organisation – from the founder of an aid charity reportedly fraudulently awarding contracts to a family member, to losing valuable funds.

So what can you do to minimise internal fraud risk to your charity?

  1. Have a clear zero tolerance fraud policy
  2. Have a whistle blowing process
  3. Ensure you conduct regular audits
  4. Have a process ready to follow when you do uncover fraud
  5. Ensure you consider how you will manage internal communications in the event of internal fraud

When you uncover internal fraud, don’t underestimate the emotional response you may have – ensure you have a process to follow.

5 tips for preventing external charity fraud

In our recent risk survey in conjunction with Charity Times, fundraising was the top concern for charities – making it vitally important that income generated is protected from fraudsters.

The survey also suggests that even though 72% of charities feel confident in their ability to deal with fraud, reputational risk associated with fraud (or alleged fraud), which could see a charity hitting the headlines, was considered significant by 40% of respondents.

Charities do amazing work for our communities, so helping them fight fraud has benefits for all.

Some of the types of fraud that they need to be aware of are false invoicing, unauthorised fundraising and credit card scams.

So how can you protect your charity from external fraud?

  • Have a strict invoicing process – ensure all invoices are assigned an owner who can verify that the services or goods have been received, and the owner is consulted before the invoice is paid
  • Unauthorised fundraising – The Charity Commission recommends that trustees should take appropriate steps to stop any unauthorised fundraising (including legal action if necessary) and ensure that all donations are then passed on to their charity
  • Internal communications are important – including keeping staff informed of any known cyber attacks (phishing emails etc)
  • Credit card fraud – monitor donations for large amounts, or if a large number of transactions are made in a short timeframe.Checking the donor’s IP address is also an indication of fraud – be vigilant if it is different from the cardholder’s billing address (e.g. different countries), and where a single IP address is utilised to make multiple small donations from different payment cards
  • Have an internal reporting process to share any concerns – the Charity Commission should be made aware if there is any evidence of fraud that could seriously harm the charity, its beneficiaries or assets. Reporting serious incidents including fraud to the Charity Commission is a requirement for trustees, and they must do this and report suspected fraud to Action Fraud. The Charity Commissions guidance for trustees can be viewed here