A third of charity frauds reported to the Charity Commission are suspected to involve staff or volunteers, according to the regulator.
The commission said analysis of its data showed that insider fraud involving staff, trustees or volunteers accounted for a third of the frauds reported to it, and issued a call for information from charities about the scale of the issue.
It is estimated that fraud in general costs the charity sector about £2bn a year, which would amount to almost £667m worth of insider fraud if the commission’s figures are extrapolated across all charity frauds nationally.
The commission also advised charities to take a number of steps to minimise the risk of insider fraud, including avoiding placing excessive degrees of trust and responsibility in particular people and putting in financial controls such as dual authorisation.
Other measures recommended by the commission included promoting a culture of openness and accountability to encourage staff to report concerns as soon as possible, and having clear reporting procedures in place.
Staff should also keep an eye out for signs of possible fraudulent activity, said the regulator, such as unusual behaviour or lifestyle changes and regular unexplained cash withdrawals.
The warnings come in the wake of a number of recent cases of insider fraud in the sector, including a £1.3m fraud by the finance manager of Cyrenians Cyrmu, which caused the charity’s collapse in 2015, and a £359,551 fraud at British Red Cross that saw the perpetrator, Mary Booth, sentenced to two years and three months in prison earlier this year.
Michelle Russell, director of investigations, monitoring and enforcement at the Charity Commission, said: "The reality is that insider fraud does happen in charities. It might be an opportunistic crime made easy due to a lack of oversight or poor controls. It might be a more sophisticated pre-planned fraud, taking place over a number of years involving significant sums of money.
"Ultimately, whether it happens in a small charity with no employees or a multimillion-pound household name, fraud diverts money away from those the charity is helping and who need it.
"It’s crucial that everyone working or volunteering in a charity is fraud-alert. This means keeping an eye out for any suspicious behaviour or irregular activity and speaking out when they do have any concerns, and charities need to be robust in dealing with it if it happens.