Preventing Insider Fraud in Charities

Recent high profile cases highlight that charities are as vulnerable to insider fraud as any other business. Teresa Campbell explains how to go about protecting your organisation.

Charities are almost always set up with the aim of doing good. However, when organisations rely on a small number of staff or volunteers to run day-to-day operations, control and oversight are not always all that they should be. This can present serious risks for trustees who have a legal duty to safeguard the charity’s assets.

Attitudes to fraud are almost always set by the tone at the top. Unless you make clear the standards that you expect, you cannot expect volunteers and staff to adhere to them.

Trustee Training and Development

Often, when first appointed, a new trustee may not have all of the knowledge and skills needed to carry out their duties effectively. Induction and training are therefore very important. Equally, it is vital that trustees keep their knowledge and skills up to date. Rules and regulations change and your learning is never complete. Continuous education and development are part and parcel of protecting your organisation.

Various resources can help you to keep up to date. For example, guidance on internal financial controls is available from the Charity Commission in the UK while in the Republic of Ireland, the Charities Regulator has published guidance for trustees of small to medium sized charities on developing and implementing internal financial controls within their charity. Attending seminars and briefings and networking with other not-for-profit organisations are also useful ways to update your knowledge.

Risk assessment

Risk assessment is another important consideration. Focus on where the fraud opportunities in your organisation are. Assess the risks and consider what improvements you need to implement in your systems. Trustees need to think about the charity’s sources of income, how cash is collected, who can sign off on purchases and contracts, what steps are taken to protect assets etc. Information technology and systems also need to be kept under review and measures taken to protect against exposure to cyber attacks and risks. Remember to consider human risks also, focusing in particular on opportunities for fraud as well as motive and rationale. Anecdotal evidence would suggest that fraud occurs most frequently when controls are weak or non-existent. All of these matters have a bearing on your organisation’s reputation. A good reputation takes time to develop and can be lost in an instant.

Implementing robust procedures such as tight control for authorisation of expense claims, carrying out daily or weekly bank reconciliations, separating duties so that where an employee places an order, the order is approved by someone else are some examples of practical steps you can take to protect your organisation against potential fraudsters.

What to do if you suspect fraud

If you suspect fraud is occurring, it’s a good idea to get professional advice promptly as the way that you deal with the situation can affect your long-term reputation as well as your ability to recover losses.

PKF-FPM organises regular seminars and briefings for our clients in the charities sector. If you are not already on our mailing list and would like an invite to these events, please contact a member of our team.

Teresa Campbell l Director
t.campbell@pkffpm.com