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Over two-thirds of charities think fraud is a major risk to the charity sector and internal fraud is recognised as one of the biggest threats.
A research study about fraud awareness, resilience and cyber security revealed that although 69 per cent of charities consider fraud to be a major risk, many are not doing the basics to protect themselves.
The research study, which saw 3,300 charities take part, found that over a third (34 per cent) think their organisation is not vulnerable to any of the most common types of charity fraud, while over a half (53 per cent) of charities affected by fraud in the past two years knew the perpetrator.
Moreover, 85 per cent of the participating charities said they believe they are doing everything they can to prevent fraud, but almost half don’t have any good-practice protections in place.
“The gap between awareness and practical action poses a threat to charities’ valuable funds, and to public trust and confidence in the sector,” said the Charity Commission.
According to the study, less than a third of charities have a whistleblowing policy, while less than a tenth have a fraud awareness training program.
The Charity Commission pointed out that while there is a decline in the number of charities reporting at least one fraud during the last two years, these numbers run contrary to national trends.
“This suggests that charities still have much to do to better identify and report fraud,” the regulator said.
In regard to the charities that have suffered a fraud in the last two years, the commission noted that over half of these charities knew who the perpetrator was.
Where the identity of the fraudster was known, 29 per cent were paid members of staff, 18 per cent were volunteers, 13 per cent were beneficiaries and 10 per cent were trustees. Only 14 per cent of fraudsters had no previous connection to the charity.
In response to these findings, the regulator cautioned that application of financial controls and audit remain core to timely identification; so too does whistleblowing.
“In short, it is the actions of the charity, its staff and volunteers that is critical to effective fraud prevention,” it said.
The regulator called on trustees, employees and the wider public to learn more about the threat of fraud during international charity fraud awareness week, which runs from 21 to 25 October.
You can access the Charity Fraud Awareness hub here.