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Insider fraud: What charities can do to minimise the risks.

Kevin Cooper

In 2018, the Charity Commission published a report on their study into how insider fraud is affecting charities and non-profit organisations.

Insider fraud is defined as:

 “Fraud committed by somebody within the charity such as a trustee, employee or volunteer. Examples of insider fraud include (but are not limited to) financial and accounting fraud, unauthorised payments to individuals, inflated expenses and the theft of information”.

Insider fraud does not just damage the charity’s finances, but can also affect the reputation of the charity, leading to fewer donations, poor staff morale and volunteer retention.

How does insider fraud happen?
During the first phase of its study, the Charity Commission reviewed a series of 20 cases where insider fraud had either taken place or there was a high-risk of it happening.
The results showed that in 19 of the 20 cases analysed, the primary enabling factor was the absence of appropriate controls in either allowing the fraud to occur or in making the charity more vulnerable to fraud.

Who committed the fraud?
The study found that in 43% of all the cases analysed, an employee of the charity was who committed the fraud.
The other members were:
  • Trustees – 33%
  • Volunteers – 10%
  • Other - 10%
  • *4% did not answer this question
Contributing factors
The Charity Commission also found that 43% of respondents suggested that the prime contributing factor to insider fraud was excessive trust and/or responsibilities placed on one individual. Other factors include:
  • Lack of challenge or oversight – 24%
  • Absence of controls or existing controls poorly applied - 24%
  • A combination of more than 1 factor – 5%
  • *4% did not answer this question
Resulting actions
  • 62% of charities who suffered from fraud reported it to action fraud or the police
  • 57% reported the fraud to the Charity Commission
  • 19% of frauds report to the authorities resulted in a prosecution
  • 38% recovered part of all of the money/assets taken
  • 81% undertook a review of existing controls to combat fraud in the future
  • 76% of the frauds prompted media coverage.
The charity commission wants to remind trustees that they are accountable and must protect their charity and its funds and assets.
Tips for Trustees to combat insider fraud
  1. Aim to develop a counter fraud culture
  2. Implement financial controls that everyone signs up to
  3. Conduct an annual review of fraud risk and internal controls
  4. Consider having a dedicated fraud officer on the board
  5. Encourage staff and volunteers to raise concerns
  1. Promote fraud awareness and consider training
  2. Conduct pre-employment screening and get reference checks
  3. Guard against excessive trust and complacency
  4. Do not be afraid to challenge if you suspect wrongdoing
  5. Report suspected fraud to the Charity Commission and Action Fraud

Moore and charities
Our specialist team draws together expertise from various disciplines throughout the firm to provide strategic and operational advice to this technically complicated and highly regulated sector.
We help charities of all sizes ranging from major organisations with international operations, to small local charities. Our expertise encompasses all organisations whether you operate in research, health, social welfare, education, conservation, citizenship or religious and overseas aid activities.
For more information on our services for charities, please contact you local Moore office today.