When it comes to fraud, charities are as vulnerable as any other organisation. Some of the costs are obvious; financial loss and the impact this has on your ability to carry out your charity’s mission. But there are hidden costs too: the damage to staff and volunteer morale, as well as the blow to your charity’s reputation, which may cost you precious donations and goodwill.
It pays to be aware of where your charity could be exposed and the actions you can take to reduce your chances of getting caught out.
How does fraud happen?
According to the Fraud Advisory Panel, the greatest source of fraud for charities in 2020 was similar to traditional frauds such as phishing, emails, payment diversion, falsified refunds, over-billing suppliers or siphoning off donations – but with a Covid-19 twist: playing on vital and scarce supplies and services such as PPE, face masks and vaccines. It’s not surprising that with the sudden and widespread shift to remote working and social distancing, preying on people’s fear and sense of urgency has never been easier for fraudsters.
When it comes to losses across the sector, charities are particularly vulnerable to fraudulent grant applications, while online fraud and data theft are an increasing threat across all sectors and walks of life.
There are other, less obvious ways your organisation could lose out to fraudsters, too. A disgruntled employee or volunteer could decide to lodge a false claim for injury in the workplace, to see if they get lucky. Or a legitimate claim by an employee, volunteer or member of the public could be exaggerated in an attempt to bump up compensation.
Whatever form it takes, fraud is a costly inconvenience at best – and at worst, a devastating blow to your organisation.
What can you do about fraud?
1. Be aware of the risks
It’s all too easy for charities – especially smaller ones – to fall into the trap of believing no one would want to defraud an organisation doing good in the world. Rule number one is to realise you need to be as vigilant and prepared as any other business with assets and cashflow at stake.
2. Prevention is better than cure
It makes sense to limit the opportunities for fraud in your organisation as much as possible. This means carrying out risk assessments, especially in vulnerable areas such as procurement, accounts and IT, and taking action to plug any gaps.
The key is to have sound control measures in place: systems, checks and auditing that ensure no one person is left in charge of the purse strings and that any irregularities can be spotted early. Robust vetting at the hiring stage, and for grant applications, can also help limit the chances of fraud.
3. Encourage good practice
Making sure staff understand the risks of fraud, and are trained to help prevent it, is very important. If anything goes wrong, and your staff have been following the proper procedures, you will be able to demonstrate to your insurers that all reasonable measures were in place to limit your charity’s exposure. In some cases, your insurer may refuse to pay a claim if these procedures haven’t been followed correctly.
This doesn’t just apply to financial situations. With injury claims, having reliable, up-to-date health and safety records of accidents in the workplace makes it much harder for someone to falsify a claim.
It’s also good practice to have a sound whistleblowing system, so staff know who to go to if they are concerned fraud is happening.
4. Check your insurance
Your organisation’s corporate and public liability insurances should have an element of fraud cover built in. However, it’s worth reviewing this to make sure you have enough cover for your charity’s needs and that you are aware of any exclusions. For example, you may find that trustees need separate, additional cover. Or that your policy hasn’t kept up with changes in the marketplace, such as the growing need for cover against cyber fraud.
A reassuring thought
You’re not on your own! A good insurance broker can help you review your organisation’s processes, identify risks and provide advice about what you can do to limit your exposure to fraud. Leaving you free to focus on what really matters: your charity and the important work it does in the world.