Cost to voluntary sector of fraud revealed

The figure is released in the Annual Fraud Indicator 2016

Fraud: 'mutates'
Fraud: 'mutates'

The voluntary sector is losing up to £1.9bn a year to fraud, according to a new report.

The Annual Fraud Indicator 2016, which was overseen by the UK Fraud Costs Measurement Committee and based on research by the Centre for Counter Fraud Studies at the University of Portsmouth with support from the accountancy firm PKF Littlejohn and the information services company Experian, estimates that the cost of fraud affecting the voluntary sector was £1.86bn in 2013/14, or 2.5 per cent of the sector’s annual income and expenditure.

The figure is significantly higher than other estimates of fraud affecting the voluntary sector made in recent years.

The Annual Fraud Indicator, which was supported by the government until 2013, put annual fraud in the charity sector at £1.1bn in 2012. And a report co-authored by the Centre for Counter Fraud Studies in 2014 put the figure at £1.65bn a year.

Today’s report estimates that in 2013/14 the voluntary sector lost £886m to payroll fraud, £776m to procurement fraud and a further £196m to grant fraud.

Procurement fraud accounted for almost 5 per cent of the sector’s total expenditure in that area over the same year, with grant fraud making up almost 4 per cent of grant spending. Payroll fraud accounted for 1.7 per cent of total payroll expenditure in that area over the same year, the report says.

The total cost of fraud across all sectors in the UK is £193bn a year, the report says, with £144bn of this affecting the private sector, £37.5bn affecting the public sector and £10bn affecting individuals.

PKF Littlejohn said it had been working with the Charity Finance Group to produce a guide for charities on how to tackle fraud, to be published next month.

Heather McLoughlin, policy and public affairs officer at the CFG, said it was important that charities got to grips with fraud.

"Unfortunately, as this survey shows, despite our good work charities are not immune to fraud and need to be aware of emerging risks, such as cyber-enabled fraud," she said.

"This report is a welcome addition to the body of research on fraud in the UK. However, charities shouldn’t fixate on the numbers – the critical thing is to be aware and take appropriate action."

Jim Gee, chair of the UK Fraud Cost Measurement Committee and head of forensic and counter-fraud services at PKF Littlejohn, said charities were becoming more aware of fraud and the Charity Commission had stepped up its work in this area, but there was much more to be done.

"Fraud is best seen as similar to a clinical virus – something that continually mutates and changes as fraudsters seek the greatest benefits for the least risks," he said. "The best way to reduce its extent and cost is to make sure charities are fraud-resilient and able to protect themselves against a continually evolving threat."

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