Avoiding fraud in your charity

Richard Napoli, claims manager at Markel, explains how insurance and risk management can be used to reduce the likelihood of a major loss from fraud by employees or volunteers

Talking to claims people about trends can be depressing. They see only the bad side of it: staged accidents, fraudulent injury claims, no win-no fee, theft of lead from churches... the list goes on.  But what about losses where money is taken from the most vulnerable people or organisations that spend much of their time raising funds in the first place?

An increasing number of charities have been victims of fraud

According to the Annual Fraud Indicator 2016 report, in 2013/14 the voluntary sector lost an estimated £1.86bn to fraud.

We have seen claims in the past for employee theft of money through fraudulent activity, running into many thousands of pounds stolen from organisations, often over several years. These ‘fidelity’ losses are often perpetrated by trusted or long-standing members of staff, usually in senior positions. They know the systems and use this knowledge to their advantage.

Remove grey areas and blind spots to avoid losses

It may seem onerous, and there must always be an element of trust, but with grey areas and blind spots removed, losses can be avoided.

-  Constantly review accounting and audit procedures. Basic principles such as double verification of cash collected and outgoings can prevent problems. Don’t allow staff access to business areas not in their remit.

-  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.

Managing new areas of risk

Worryingly, we have also seen cases in which service users have been targeted by 'carers' – staff in positions of trust. Most care regimes do not allow staff access to clients’ funds but often the client will ask the carer to get cash for them from their bank. With ready access to accounts, a determined thief will take advantage and, in many cases, the client’s savings are gradually drained over time.

-  Avoid compromise where security is involved – appropriate supervision within a team structure is essential. Overworked managers or supervisors are often spread too thinly, but money saved by cost-cutting in a supervisory area can be lost many times over through inadequate controls.

-  Proper documenting of client visits is essential, with joint visits on a regular but random basis also recommended.

-  If your organisation provides supplementary care, obtain feedback from the client’s main carers and family whenever possible.

-  Where arrangements are changed or cancelled based on information from the normal carer, get the information verified. We have seen instances in which the carer advises that the client is away or in hospital when in fact they are still visiting them and carrying out further misappropriation of cash.

-  A key point to remember is that you will virtually always be responsible for thefts from clients perpetrated by your employees, regardless of the steps you have taken to prevent it.

The cost in time of investigating these incidents and the potential for bad publicity should not be under-estimated. It can be crippling.

Read more about the warning signs of fraud.

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