Charity fraud risk rises as cost-of-living crisis takes hold
Charity fraud risk rises as cost-of-living crisis takes hold
The survey of 120 leaders from UK charities, published today as part of Charity Fraud Awareness Week, found that 43% of charities were the victims of fraud over the last 12 months. This compares to 36% the previous year.
A third of those surveyed say they have experienced more instances of fraud or attempted fraud in the last year, with 64% of charities believing the risk will only increase in 2024 as the cost-of-living crisis takes hold and the financial strain on individuals and households increases.
Worryingly, the biggest threat comes from the charity’s own staff and volunteers. Of all frauds suffered by the charities questioned, 50% were conducted by people within the organisation.
On average, charities experienced three different types of fraud. The misappropriation of cash or assets by staff and volunteers was the most common (42%), followed by fraudulent staff expenses (35%).
However, payment diversion fraud, also known as push payment fraud, was also high this year, with 33% of charities experiencing this type of fraud. This fraud happens when a fraudster impersonates a supplier by creating or amending invoices to divert funds to bank accounts under their control.
Another significant change noted in the BDO/Fraud Advisory Panel research is the significant financial impact. For the most recent fraud, nine out ten charities (92%) suffered a financial loss from fraudulent activity – up from 69% last year – representing a huge amount of valuable funds that have been diverted away from charitable purposes.
When looking at the total fraud losses over the last 12 months, the majority (65%) experienced losses under £100,000. However, 23% suffered financial blows up to £1m, and 4% suffered total losses exceeding £1m.
Tracey Kenworthy, Counter Fraud Director at BDO, said: “In tough economic times, fraud risks are at their highest. It is unlikely to be a coincidence that we’re witnessing a growing trend for fraud as the UK endures a cost-of-living crisis. Sadly, in reality, these figures are likely to be just the tip of the iceberg, with so many frauds remaining undetected and unreported.
“While appreciating that so many charities are already stretched, it is important that charities do everything they can to tackle the fraud risks they are facing. The better charities understand their fraud risk and implement measures to prevent and detect it, the better chance they have in protecting against financial losses and severe reputational damage that can impact donor confidence.”
Sir David Green, Chair of Fraud Advisory Panel, adds: “This year’s Charity Fraud Report underlines the need for charities of all sizes to cooperate in the fight against the threats posed by fraud.
“The 2023 survey clearly identifies those threats and underlines the need for collaboration across the private, public and third sectors so that the strength and effectiveness of our counter-fraud defences are maximised.”
Top tips for detecting fraud
Detecting fraud is one of the most challenging aspects of a fraud risk management framework, according to the BDO report, and internal controls are the best first defence. Charities should:- Ensure the control environment is designed with the risk of fraud in mind
- Carry out regular fraud risk reviews and fraud training to ensure appropriate fraud awareness across the organisation at all levels
- Develop a clear and robust whistleblowing policy that all staff, volunteers and trustees are familiar with.
ENDS
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