As auditors, we talk about fraud a lot – it is an integral part of our audit process to consider the risk of fraud to the financial statements, and the organisation as a whole.
Fraud is a key risk area for charities, impacting their ability to maintain trust with donors and beneficiaries and ultimately achieve their purpose.
A common misconception is that fraud only ever happens inside a business, but there are external factors to consider too, including digital threats and cybercrime. This guide explores the various types of fraud, how charities can be susceptible, and the resources available to help mitigate these risks.
What is fraud?
Fraud is the criminal offense of a person acting dishonestly with the intent to make a gain (for themselves or another) or cause another person to suffer, or risk suffering, a loss. The Fraud Act 2006 outlines three categories of fraud: false representation; failing to disclose information; and abuse of position (sometimes referred to as the ‘insider threat’).
How might my charity be susceptible?
All charities should have anti-fraud policies in place to mitigate the risk of fraud. The policy will detail the charity’s responsibilities for the prevention and detection of fraud and its response to them.
For most charities, a key consideration is around fraud by abuse of position – the risk of embezzlement of funds intended to support the charity’s objectives.
However, it is important to also consider the risk factors external to the charity – for example the risk of a third party making a false representation to the charity in an attempt to steal funds, personal or commercial data for their own benefit. Cyberthreats such as phishing attacks, malware and ransomware could impact staff and volunteers at all levels of an organisation, so a robust and clearly communicated anti-fraud policy is essential.
Charities are susceptible to cybercrime as they hold funds and data that have financial value to cybercriminals, and often have a high volume of volunteers who need access to that data.
What resources are available?
The Fraud Advisory Panel, in conjunction with the Charity Commission, have produced charity-specific guidance through their fraud resource centre, Prevent Charity Fraud. As part of Charity Fraud Awareness Week 2024, they will be sharing resources, insights and best practice to help charities mitigate their risk of internal and external fraud, in addition to running webinars and other events.
There is a lot of support for charities out there when it comes to managing fraud, but should you need specific advice feel free to get in touch with one of the Dafferns charity team.
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