By Tracey Kenworthy, director and Holly Thompson, forensic assistant manager, BDO.
A narrated version of this blog is available at the bottom of the page
Prevent. Detect. Remediate. These steps remind us of how important it is to balance proactive safeguards while preparing for worst-case scenarios.
This balance is especially important where a worst-case incident could drastically affect a charity’s solvency and ability to provide valuable services to vulnerable people.
These three elements should be the backbone of any charity’s anti-fraud framework, around which management organises all other measures.
Prevent
Many fraud losses are preventable with sufficient knowledge and awareness of the risks.
Understanding fraud risks, implementing a clear strategic approach to combatting fraud, raising awareness amongst staff and stakeholders, and implementing controls to prevent fraud, are essential.
Each charity’s operational framework will be different and understanding each charity’s unique barriers to fraud prevention is crucial to curating an effective fraud prevention environment. The best step that charities can take to avoid fraud is to be proactive in having a robust and up-to-date fraud prevention framework.
In last year’s Charity Fraud Survey run by BDO LLP in conjunction with the Fraud Advisory Panel, 58% of respondents agreed that their financial investment in fraud prevention was enough, but 15% thought it was insufficient. Policies are a good indication of whether a charity has considered the various risks associated with fraud, and the majority of respondents had key policies in place including those in relation to conflicts of interest (84%), whistle-blowing (82%), cybersecurity (65%) and anti-fraud (64%). However, only one third of respondents had carried out a fraud risk assessment or fraud awareness training in the last year.
Detect
An encouraging sign from the respondents in last year’s survey was the way in which fraud cases were detected.
Unsurprisingly, internal controls (56%) and internal whistle-blowers (19%) were the most common detection methods.
These figures show how important it is for charities to ensure that:
- The control environment is designed with the risk of fraud in mind;
- There is appropriate fraud awareness across the organisation at all levels; and
- There is a clear path to report concerns about suspected fraud with confidence.
Detecting fraud is one of the most challenging aspects of the fraud risk management framework. However, the higher fraud risk management is on any charity’s agenda, the higher the chances that fraud will be detected, so it is worth the challenge.
Remediate
Last year’s survey also asked charities about remedial actions taken after an instance of fraud.
Two-thirds of respondents stated that they had instigated control changes, and around a third had made policy and staff changes, including dismissing employees and volunteers. It is encouraging that so many charities are taking these steps to improve their resilience after an incident of fraud to tackle the root causes and prevent future incidents.
Although there was a 20% decrease in referrals to the police compared to the previous year’s results, there was an overall increase in the number of other actions taken. In addition, almost half of those who stated they referred the matter to the police also took internal disciplinary action, a marked shift from the previous year’s results.
Overall, it suggests that there is an increasing appetite to hold fraudsters to account through the pursuit of parallel sanctions.
Conclusion
Protect. Detect. Remediate. This three-pronged approach seems as easy as 1, 2, 3 on paper. In reality, it can be challenging for charities to apply.
However, it is a challenge that charities need to meet head on in order to protect their assets and beneficiaries from harm, now and in the future.
Has fraud impacted your charity? We want to know how you have protected your charity from fraud – take part in the 2023 Charity Fraud Survey now.
The data we collect from our survey will help us to understand the current fraud landscape and help raise awareness of fraud risks in the UK charity sector to #StopCharityFraud.
The information you provide will be treated in confidence, and all answers will be anonymous.
