Top tips for a small charity to guard against fraud

With charities increasingly falling victim to fraud it is time to start to look seriously at preventing fraud. The Annual Fraud Indicator 2016 estimates fraud costs the charity sector £193bn a year, and a time when resources are tight, small charities cannot afford to have money going away from the frontline.

Fraud can have a damaging impact on the reputation of your organisation, so it is important that charities take appropriate measures. Fraud can occur in many different ways, and the positive nature of charities will not put off potential fraudsters.

Here are some tips to help small charities improve their fraud resilience:

Action is a must!

The motto ‘Be Prepared’ should be the attitude taken for tackling fraud. There are always things that you can do directly within your organisation (even for small charities) to help reduce fraud. Check the current steps that you are taking to reduce fraud and who is responsible for managing this risk. Fraud should be managed like any other risk. Counter fraud work should be integrated into your standard performance indicators.

Consider updating your counter fraud strategy to plug any gaps and consider new risks, such as cyber-fraud. Having a strong counter-fraud strategy is important in mitigating both internal and external fraud.

Understand what fraud is.

There are many aspects to fraud and there may be parts of your organisation which are at risk to fraud that you may not have considered previously. Dedicate time to identify and understand where in your organisation you could be at a greater risk. The Charity Commission checklist is a good place to start when looking at areas that might expose your organisation to high risk.

Articulating the cost of fraud to your organisation

Tackling fraud requires a strong counter-fraud culture across your organisation. You need to get buy-in from staff, trustees and volunteers. If you’re having trouble convincing people working with your organisation that investing time into tackling fraud is worthwhile, looking at the potential or actual cost of fraud to your organisation can be a great incentive.

Having strong counter-fraud policies in place also has the potential to reassure funders. Make sure that everyone understands the benefits (both financial and reputational) from being tough on fraud.

• Set the right tone from the top.

Employees should feel confident that reporting suspected fraud will be treated seriously and professionally by the CEO and trustees. Encouraging fraud reporting will give people the responsibility to change behaviour to tackle it. Consider getting a Trustee to be a designated ‘lead’ on fraud and make sure that reporting mechanisms are clearly understood by all staff.

• Remember that prevention is better than cure.

Two-thirds of the financial benefits from reducing the cost of fraud come from changing human behaviour within the workplace. Ensure people are focused on the outcomes to be derived from counter fraud work. Some examples of precautions that it is suggested to take are:
• Constantly review accounting and audit procedures.
• Set an anti-fraud policy, It is good practice for every charity to document its stance on fraud risk management:
How your charity will respond to fraud.
Key responsibilities of senior staff and trustees in preventing and detecting fraud and in co-operating with any investigations.
How individuals can report concerns and suspicions of fraud.

The Fraud Advisory Panel has produced guidance on preparing an anti-fraud policy statement and also a template anti-fraud policy which can be adapted to fit your charity.
• Basic principles such as:
Double verification of cash collected and outgoings.
Don’t allow staff access to business areas not in their remit.
Record all incoming cheques and cash immediately.
Make regular checks to ensure income records agree with the bank paying-in books and statements.
Ensure there is a practice of not signing blank cheques.
Require at least two signatories on outgoing cheques.
Enter details of all cash payments in a petty cash book, and ensure it is banked as soon as possible.
Spot checks and irregularly timed audits will prevent a predictable routine building that can be taken advantage of.

Get advice from your bank, accountant or auditor as to how your systems can be tightened.
There is no ‘one size fits all’ method for tackling fraud.

You need to find the method that works best based on the size of your organisation and the kind of activities that you undertake. You need to take a proportionate response to fraud risks, so consider whether the actions you are taking go far enough to protect your organisation.

There are a variety of options, from seeking advice from professionally accredited counter fraud specialists, to reading the Charity Commission and CFG’s fraud guides. There are lots of tools at your disposal. Look around.

Make sure to report instances of fraud

Reporting in the charity sector on fraud is below average compared with other sectors. If your charity has suffered a fraud, then you must report it to the Police (via Action Fraud) and the Charity Commission, as a serious incident.

Heather Mcloughlin works as Policy Officer for CFG 


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