Fraud costs UK charity sector £1.65bn a year, report says

A study by the Centre for Counter Fraud Studies and the accountancy firm BDO says improved measures could save about 40 per cent of the amount lost

Fraud is costing the UK charity sector £1.65bn a year, according to a new report.

The figure has been derived from the global average loss to charities per year through fraud of 5.47 per cent and then applied to the 842 UK charities with annual incomes of more than £10m, which have a combined expenditure of £30.1bn.

The report, Minimising Fraud and Maximising Results for Charitable Purposes, the first of its kind, was co-authored by the Centre for Counter Fraud Studies at the University of Portsmouth and the accountancy firm BDO.

It says improved counter-fraud measures could save about £659m a year, or 40 per cent of the amount lost.

It says that the development of "strong counter-fraud cultures", meaningful deterrents and the removal of weak processes that allow the opportunity for fraud would reduce the overall total.

The report says the current global fraud rate of 5.47 per cent is up by 20 per cent since the start of the economic downturn and that if the not-for-profit sector had emulated private organisations, it could be preventing up to 60 per cent of fraud.

Figures from the National Fraud Authority published in 2012 put the total amount of fraud in the UK charity sector at £1.1bn in 2011.

Examples of the some of the largest recent frauds in the charity sector include a businessman who was jailed for more than three years after pleading guilty to taking £213,000 from charity collections, the report says.

The man hired fundraisers to stand outside supermarkets and organise collections, taking a cut from the collections, but he failed to declare most of the money raised.

In 2012, fraudsters conned several charities into parting with £685,000 for the distribution of letters by undercutting the Royal Mail.

But 1.3 million letters were left unsent and then destroyed by the fraudsters.

"Many charities and other not-for-profit organisations operate on a shoestring budget, so it can be difficult for them to allocate extra resources to improving counter-fraud measures," said Jim Gee, director of counter-fraud services at BDO.

"However, the cost of fraud in the sector is estimated to be about £1.65bn a year and there is a reasonable expectation of recovering as much as 40 per cent of this in a two-year period, so the benefit of careful investment to strengthen counter-fraud arrangements could far outweigh the cost."

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