DFK UK & Ireland

Many charities unprepared for fraud, says watchdog

Many charities are ill-prepared to deal with fraud, according to independent watchdog the Fraud Advisory Panel (FAP) in their latest research sponsored by Chantrey Vellacott DFK LLP.

The new research conducted amongst charities with an income of £10,000 or more, and published today (24th February 2009), reveals that 60% of charities in England and Wales have no significant anti-fraud policies and procedures in place. This rises to almost three-quarters of smaller charities.

The survey studied more than one thousand charities of varying type and size to assess the impact and cost of fraud in the charitable sector, and to discover what charities are doing to fight fraud.

It found that even though half of all respondents think fraud is a major risk to charities, due to their reliance on trust and goodwill, fraud is still not properly considered across the sector as a whole. Overall, seven per cent of respondents had suffered a fraud in the last two years.

Ros Wright, Chairman of the Panel and a former Director of the Serious Fraud Office, said: “Charities that fall victim to fraud must cope with cancelled projects and damaged reputations as well as direct financial losses. Then there is the harm done to staff morale; our in-depth follow-up interviews found significant levels of stress, feelings of betrayal and illness, and sometimes even redundancy, all as a direct consequence of fraud.”

”Yet most charities still have no anti-fraud measures in place. Our researchers spoke to organisations that had been brought to the very brink of extinction by fraud, but many remain unaware even of the support available through bodies such as the Charity Commission.”

“Charities that have avoided the attentions of fraudsters need to learn lessons from those which have not been so fortunate,” says Mrs Wright.

Just over half of the charities that have already fallen victim to fraud now think, in retrospect, that they contributed to the fraud taking place by being too trusting or having inadequate internal controls.

“That should be a wake up call, but instead many charities are behaving as if fraud happens only to other organisations”, says Mrs Wright.

“In fact, the experiences of the charities in our study suggest that in England and Wales thousands of charitable organisations are hit by fraud every year. The small organisations are the least prepared, and so are the most potentially vulnerable. But remember, the vast majority of the 170,000 charities in England and Wales are small charities. Overcoming resistance to change, spreading the word about the urgent need for real preventative and effective controls and procedures, is clearly an important and pressing challenge both for individual charities and the sector as a whole.”

For further information please contact Dr Stephen Hill at shill@cvdfk.com or 020 7509 9000. Stephen is a trustee director of the Fraud Advisory Panel and Head of the Fraud & Forensic Group at Chantrey Vellacott DFK LLP.

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