This week is Charity Fraud Awareness Week 2021 and we want to alert our charity clients that they should review the safeguards they have in place to protect themselves from fraud and cybercrime. Almost £8.6 million of lost funds was reported by charities in the last financial year, and this does not include unreported crime. The pandemic has been the main reason for this because of remote working and reliance on online sign-off processes.

The Charity Regulator is urging all trustees to sign-up to a new Stop Fraud Pledge, to commit their charity to take six active measures to reduce the chances of falling victim to fraud. These are:

1. Appoint – a suitable staff member/volunteer to champion counter fraud work throughout your organisation.

2. Ensure – that all their trustees are aware of their legal duty to protect the charity’s assets.

3. Consult – with staff, volunteers and trustees to identify the types of fraud that threaten the charity and ways to prevent them.

4. Create – a Fraud Policy and share it regularly with everyone concerned to help them identify fraud in its early stages. See the following helpful checklist and guidance:

                     Small charities checklist 

Internal financial controls

5. Perform – checks on the individuals and organisations the charity has a financial relationship with. Obtain references and ensure that these are from reliable sources such as reputable institutions like banks, accountants and lawyers.

6. Assess – how well the fraud policy and controls are working, taking into account any new risks and improvements needed. Update the policy accordingly and go through the cycle again of consulting and training people.

Fraud Awareness for Grant Making Charities

This an area where the sector has seen a growth in fraud and ever more creative ways the fraudsters are scamming charities.  A lot of this has been fuelled by the pandemic and the surge in emergency funding made available by the government and other institutions. The areas where Grant Fraud can occur are at the:

Pre-Award stage

Risk Areas

Misleading applications- examples of some red flags to look out for are:

• multiple grant applications from the same entity or person with similar layouts on figures reported such as budgets and similar points explaining the use of the grant;
• multiple requests for amounts just below a threshold which would normally flag further enquiry;
• the use of stolen ID’s by fraudsters;
• the use of expired websites;
• personal bank accounts and email addresses (eg hotmail, yahoo) being used instead of business ones.

Response recommendations

We recommend that management or trustees undertake the following where possible:

• pre-application visits wherever possible;
• carry out Due Diligence procedures such as running checks on individuals and organisations;
• seek references from reliable sources;
• request official financial documents;
• satisfy yourself the applicants governance arrangements are robust;
• enquire who the Trustees are and approach them;
• check that any bank accounts provided are in fact business ones;
• compare the size and type of the grant with the size and type of the organisation;
• enquire into levels of staff resources to monitor the grant;
• put in appropriate safeguards for organisations based overseas.

Post-Award stage

Risk Areas

Primarily, trustees and management will be worried about the misuse of grant money other than for its original purpose.

Response recommendations

We recommend that management or trustees undertake the following where possible:

• require regular reporting from the recipient;
• carry out regular monitoring of how grants are being used;
• consider paying grants in stages to have more control of funds.

Reporting

It is very important to report any fraud that has come to light to the appropriate authorities (Charity Commission). Charities should also consider reporting to other organisations such as Action Fraud and CIFAS. Sharing information with other funders or connected organisations, so that more can be done to reduce the collective loss and impact on the charity community is also highly recommended. It is encouraged that charity leaders should do everything in their powers to safeguard the funds of their charities especially during this time where fraud is so prevalent and rife.

If you have concerns over your internal controls or would like some advice on improving processes in this regard then our charity team will be happy to have a chat to determine how we can help.

Shoushan Eretzian (Manager)