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From prevention to response: charities need a structured approach to fraud

Gateley Legal

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Instances of fraud in the charity sector are becoming more frequent and sophisticated. The Charity Commission estimates that at least £8.6m was lost in the third sector due to fraud in 2020 and 2021. It is crucial that robust record keeping, financial controls and data security are implemented if a charity is to maintain public trust and continue its valuable work. 

A structured approach

A professional, systematic approach to fraud is needed by charities, especially large, multi-national charities. This is even more important in a post-Covid world since remote working and technological advances have created additional opportunities for fraudsters, whether opportunistic or organised.

Irrespective of size, a risk-based approach is needed by charities which covers:

  • due diligence on donors, beneficiaries, and partners; and
  • systems that facilitate clear auditing and provide strong network security.

A variety of challenges for the sector

The nature and sensitivity of the work undertaken can make charities a target for fraud. For instance they frequently rely on cash donations, which are often made anonymously, presenting a prime money laundering opportunity.

High employee turnover and a large number of voluntary staff can also present challenges, particularly when personnel have access to funds or sensitive data. Charities frequently rely on volunteering and altruism to operate, but this reliance can also make them vulnerable to exploitation. If clear audit trails are not in place, funds can be diverted for illegitimate use or even stolen.

Recommendations for charities

It is crucial that charities adopt a professional approach on all aspects of fraud, from prevention to response. We recommend liaising with a professional to conduct a thorough review of existing systems and processes. They can then help to develop a risk assessment, implement new procedures, and ensure all employees and volunteers are appropriately trained in data protection and fraud awareness.

Does your charity need help preventing or responding to fraud?

We have extensive experience in this area. Find out more about our not-for-profit & philanthropy and asset tracing & fraud investigation work or contact our experts below.

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