Charities should not rely on the "false comfort" of policies and procedures to prevent fraud and instead implement a culture in which people feel able to come forward and report concerns about fraudulent activity, today’s launch event for Charity Fraud Awareness Week has heard.
Pesh Framjee, global lead on non-profits for the accountancy firm Crowe, told delegates at the event in central London that, although it was important to have anti-fraud policies and procedures in place, they would not be effective if people at the charity did not follow them.
"Culture and behaviour trump policies and procedures," he said.
"That sounds like heresy coming from an auditor, because we love policies and procedures, but without the right culture and behaviour policies and procedures give you false comfort.
"In some of the biggest frauds, and some of the failures, they had the right policies and procedures but they did not have the right culture and behaviour."
Framjee said fraud was "not rife" among charities, but charities should understand their donors, beneficiaries and partner organisations to ensure they were genuine and had the right attitude to fraud and charitable funds.
For example, Framjee said, a charity could have a relationship with partner organisation and have done the due diligence required, but a few years later the people at that partner organisation might have left and been replaced, leading to a culture in which people were more willing to take advantage of the charity.
He warned that money being diverted before it reached a charity was probably the most prevalent form of fraud in the sector over the past 20 years. He highlighted the potential impact of insider fraud and bribery.
Michael Izza, chief executive of the Institute of Chartered Accountants in England and Wales, told the event that charities should encourage an anti-fraud culture by ensuring complaints were taken seriously and "maintaining an open policy towards whistleblowing".
He said "staff and volunteers will often follow what is deemed acceptable by the trustees" and called for charities to invest in their finance function.
"Many charities undervalue their finance function, which can result in poor financial management and threaten the organisation’s long-term viability," Izza said.
"I believe that charities should invest by appointing suitably qualified, experienced finance professionals to reduce the risk of fraud occurring."
He raised the example of Moorfields Eye Charity, of which he is a trustee, which managed to increased donations from a number of donors because of the quick and effective way it dealt with a potential fraud last week that required the charity’s website being taken down for a period.
Alan Bryce, head of development, counter-fraud and cyber crime at the Charity Commission, said only two charities in England and Wales posted information on their website about frauds they had dealt with and how they had dealt with them, including learning points and what happened.
Bryce said that putting basic policies in place to encourage people to report concerns about potential frauds and having a point of contact for whistleblowers could have a substantial impact.
"It doesn’t matter if you are a small or large charity, if you put the basics in about how to raise a concern and strengthen whistleblowing arrangements, you are going to get a lot more information from the people who can really help you – volunteers and employees – and you will be in a better position to actually tackle fraud in the first place," Bryce said.