Risk of insider fraud will increase over the next year, experts predict

The risk charities face from insider fraud will grow as the sector grapples with the twin impacts of the coronavirus pandemic and the recession, experts have predicted.

Insider fraud occurs when somebody within the charity, such as a trustee, employee or volunteer, commits accounting fraud, inflates expenses or steals information.

The issue was raised in an online session hosted by the Fraud Advisory Panel and the Charity Commission, looking at what charities should consider in the areas of fraud and cybercrime over the next six to 12 months. 

The panel highlighted how insider fraud did not just harm charity finances, because it could also affect staff morale and retention, as well as damaging the reputation of a charity with its donors, service users and the public.

Phil Sapey, a counter fraud specialist at Cancer Research UK, said it was important to remember that people’s motivations might change as organisations restructured and employees were at risk of losing their jobs.

“They may do something they might not do otherwise,” he said. 

Sapey also said people might do things that were fraudulent to benefit the charity rather than themselves. 

Alan Bryce, head of counter fraud and cyber crime at the Charity Commission, agreed.

“Motivation is often about need or greed, but in the charity sector they may be motivated by the cause rather than individual benefit. 

“Half of all frauds are committed by people known to the charity.”

Caron Bradshaw, chief executive of the Charity Finance Group, said some employees might massage the finances out of desperation as funding became difficult during the pandemic.

“Don’t allow best intentions to go down a road that is not healthy or legal,” she warned.

Bryce said two-thirds of all fraud happened in relation to individual controls and audits. Bradshaw added the latter could be problematic because they were not being undertaken in the same way, if at all, at the moment.

Rita Chadha, chief executive of the Small Charities Coalition, said smaller organisations needed to think more assertively about fraud and should look to employ an anti-fraud champion on their boards – someone who had the head space to keep abreast of the major challenges.

The panel agreed that it was the responsibility of everyone in a charity to be aware of fraud and guard against it. 

The debate was held as part of Charity Fraud Awareness Week, which started on Monday. 

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