‘Too trusting’ charities could fall victim to internal fraud – study warns

A new study has revealed that a culture of ‘excessive trust’ contributed to 70 per cent of internal frauds amongst a sample of charities it analysed.

The Charity Commission, which conducted the study, found that placing excessive trust or responsibility in individuals, or the lack of internal challenge and oversight were the main contributory factors.

The Commission’s findings follow a number of recent high profile cases of insider fraud, including Birmingham Dogs Home. Its former Chief Executive, who stole £900,000 from the charity over a period of four years, admitted in court that most of the stolen money had funded his gambling addiction. He was sentenced to five years in jail, while his former partner, who had worked as the charity’s Commercial Manager, received a suspended jail sentence for her part in the fraud.

In another recent case, the Head of Finance at a community regeneration charity used the organisation’s credit card to fund a personal spending spree. Port Talbot-based NSA Afan, which was created to improve the lives of people, lost almost £54,000 as a result of the fraudulent activity which was believed to have taken place over a period of three and a half years.  In handing down a 12 month jail sentence to the former finance chief, the judge branded her actions as “quite frankly outrageous.”

The Commission has now urged all charities to foster a culture where staff, trustees and volunteers are reminded of the need to challenge any concerning behaviour and not turn a blind eye when internal processes aren’t followed.

Michelle Russell, Director of Investigations, Monitoring and Enforcement at the Charity Commission advised there needs to be a culture shift amongst many charities to change people’s behaviours and encourage staff and all those involved in charities to be vigilant and speak out when things don’t seem right.

The Commission has also published advice for charities on improving their resilience to fraud, as well as a number of anonymised case studies which demonstrate instances of poor or non-application of financial controls, low fraud awareness, and excessive trust or lack of challenge.

Posted in Charities News.