No leader wants their organisation to fall victim to fraud, either from inside its own ranks or from external stakeholders, and certainly not within the charitable sector where the very raison d’etre for the organisation’s existence is to ‘do good’.

The reality is though that fraud happens in all organisations, and charities are far from exempt.

Action Fraud reports annually on levels of fraud within the charitable sector and in its last report towards the end of 2023, it detailed how fraudsters diverted more than £2.7m from charities in the previous year, with 501 separate charity fraud crimes being reported during the year to 31 October 2023. Whilst these figures remained broadly in line with the year before, this is clearly an issue that cannot be ignored.

Waiting until a fraud is discovered is a recipe for reputational and financial loss of immeasurable levels and senior leadership at both a board and executive level must take the risk seriously before they’re faced with an issue.

The background to each incident of fraud will differ, but there are several key factors that are undoubtedly fuelling this worrying trend.

In recent years there has been a significant shift in how we all work. Initially driven by the pandemic when working from home became the norm, necessarily isolating former teams into remote individuals, the longer-term reality is of streamlined workforces which have embraced flexible working patterns. This means there’s less peer checking in place and irregularities can more easily go undetected. Add to this the current high cost of living, and you’ve got a perfect storm that can create the conditions for your own team to consider committing fraud where previously they may not.

Of course, fraudulent activity against charities can equally come from external sources but the reality is that continuous improvement in processes of due diligence and cyber security have put this under the spotlight, arguably making it easier to identify at an early stage.

So, for leaders within charities what can be done to mitigate the risk of fraud, especially that committed internally?

First, act now. Do not wait until an incident has occurred – the damage is largely done by then and recovery can take far longer than early prevention. Being seen to have robust checks and balances in place can itself serve as a deterrent.

However, those checks and balances need to be fit for purpose. Having them gather dust on a shelf simply won’t cut it. Ensuring that they’re actively complied with and regularly appraised for their appropriateness is vital. Situations change – your checks and balances need to evolve accordingly.

Consider the culture of your organisation. Is trust earned or simply bestowed? Reviewing this shouldn’t be viewed negatively, it’s simply good practice. Longevity in a role doesn’t equate to infallibility. Likewise, do more junior team members feel sufficiently empowered to share concerns and is there a clearly communicated procedure for doing so? Is power fairly distributed throughout the organisation or does it sit in the hands of a few?

Taking an objective view of your organisation and identifying where vulnerabilities may lie is also a prudent step to take. However, it can be tricky to identify these from the inside – or at least it’s sometimes hard to acknowledge what those vulnerabilities may be.

The value that an objective, external eye can provide here mustn’t be underestimated.

Sayer Vincent has experience in working with charities to identify vulnerabilities, audit processes and identify opportunities for efficiencies and best practice. We take a holistic view and objectively review how your organisation’s culture supports fraud risk management. We have also been involved in fraud investigations and can support in the development of appropriate response plans, including communication to stakeholders.

With the omnipresence of charity fraud, is this something you can afford to ignore?