Three in five charities do not have any anti-fraud measures in place, according to a report published today by independent watchdog the Fraud Advisory Panel.
The report, Breach of Trust, found that half of the respondents to a survey it conducted thought fraud was a major financial risk, but few had taken any steps to combat it. Only 11 per cent had a detailed anti-fraud policy.
It also found that most charities believed they were more vulnerable to fraud than other sectors, even though only 7 per cent had been victims of fraud in the past two years, compared with about half of commercial businesses.
The report was based on a survey sent to 5,000 charities selected at random from the Charity Commission register. A total of 1,123 charities responded.
Stephen Hill, a director of the Fraud Advisory Panel and a fraud specialist at accountancy firm Chantrey Vellacott DFK, said he was surprised so many charities were not aware of what to do if they became victims of fraud, or of their responsibility to report fraud to the commission.
"The commission provides lots of information about fraud," he said. "But charities didn't know that help was there. This will give the commission something to think about in terms of how they can communicate with charities."
Andrew Hind, chief executive of the Charity Commission, said it was vital charities safeguarded the money they were given.
"We expect charities to report fraud to the commission through our serious incident reporting system," he said.
Hill said the most surprising aspect of the research was the personal effect on staff when organisations were hit by fraud.
"Employees in the charities really suffered as a result of deception," he said. "They felt cheated. There was a deep sense of sadness in some people.
"People obviously believed that they were to blame for failing to spot the frauds and felt personally responsible. They also felt deeply let down by people they had trusted."
The report said that relatively few charities were hit by fraud, but the consequences could be serious for those that were, including cancelled projects, damaged reputations and staff redundancies.