According to the Charity Commission, £2.3bn is lost annually to fraud, with insider fraud being the biggest risk. Donation theft hits the news from time to time, shining light on the criminal activity of collecting for non-existent charities, but internal fraud can go undetected for years and can involve the careful embezzlement of money by some of the most senior members of the board or seemingly hard-working employees.
Internal fraud is rarely a spur of the moment thing and can include overpaying for services or goods, establishing fake suppliers and diverting money into personal accounts. Even charities that wouldn’t appear to have large coffers can be at risk. The chairman of a parent-teacher association at a primary school, for example, was found guilty of stealing nearly £50,000 in 2017 by paying money into her husband’s account over a five-year period.
And it’s not just cash that’s going astray. In September this year, the Fundraising Regulator issued a warning about fraudulent clothes collections. Goods that have a financial value can be appealing to fraudsters, and the stealing and reselling of donations for personal profit can be a difficult activity to uncover.
First and foremost, charities need to review their financial controls regularly, keeping them up to date. Unfortunately, some charities have been hit with fraud multiple times, so it’s important to maintain vigilance as part of everyday operations.
Separating the duties between people is important, especially with financial roles. There should not just be one person with access to the bank account or cheque book, especially if that person is balancing the books. A fraud case so extreme that it is now a popular Netflix documentary concerns Rita Crundwell, comptroller and treasurer of Dixon in Illinois, US, who is currently serving a 20-year prison sentence after embezzling $53.7m (£41.3m). The whistle was finally blown on Crundwell when a junior comptroller took over the financial review during her boss’s extended holiday.
The major lesson for all is that you can't make only one person responsible for the collecting and disseminating of money, even if they have a great reputation at work and in the community.
Reconciliation shouldn’t be handled lightly. It’s important that there are checks in place to ensure that bank balances match, that suppliers are legitimate and that receipts are linked up with purchase authorisations. The more procedures you have in place, the more likely you are to dissuade potential fraudsters from trying to steal from your charity.
Your policies must be defended and shortcuts must be avoided. Pre-signing blank cheques seems an obvious risk, but many charities have fallen into this trap when signatories are not easily available.
The charity’s assets should be logged and inventories taken at regular intervals. Equipment, property and stock that is owned by the charity is the responsibility of the charity and needs to be protected.
It’s hard to fathom the unconscionable greed of fraudsters, but these stories must act as cautionary tales for all charities. Having a system in place is a start, but it must be thorough, be kept up to date and involve multiple people. Charities face more than enough hardship gathering funds to maintain the vital work they do. Fraudsters shouldn’t get a look-in.
Michelle Wright is the chief executive of Cause4, a social enterprise that supports charities in development and fundraising