As media stories emerge about two
large-scale charity insider fraudsters being convicted and given long prison
sentences, it is a good time for trustees to remind themselves about the
potential for ruinous amounts of money to be stolen from charities in this way,
and to ensure that they have robust policies and procedures in place to
minimise the risk of being targeted by similar criminal activity.
In January this year the treasurer
of a social club in Warwickshire was jailed for three years after stealing
nearly £400,000 from his employers to fund an online gambling addiction.
Glyn Drabble used a variety of
methods to syphon the funds from the club, including a digital payment system
set up to divert money from the bar’s card machine to his personal account,
applying for a ‘bounce-back’ loan on the club’s behalf, and disguising
transfers to his own account as payments to suppliers.
Meanwhile the finance manager of
Port Talbot YMCA has also been sent to prison after he stole £310,000 for the
charity over a six year period. Andrew
Philpin withdrew money on the company credit card, forged signatures on
cheques, and created invoices from companies he claimed to have worked for the
charity.
Thankfully such large-scale charity
fraud is rare, but a report published last year found that a third of all
charities had experienced an increase in fraud, with half of all detected
frauds perpetrated by staff, members, volunteers, or trustees. Almost two-thirds of charities polled said
they expected fraud levels to increase in the next 12 months, largely due to
the cost-of-living crisis.
The consequences of such fraud can
be devastating: in the case of Port Talbot YMCA, it lost its charitable status
and 28 staff members were made redundant.
But even if fraud doesn’t cause such an existential crisis, its impact
is far-reaching, knocking the confidence of staff, volunteers and funders, as
well as the obvious financial damage.
And it’s practically impossible to recover funds that are lost to this
kind of criminal activity.
More recently, building surveyor, Roger Bryant was jailed for swindling the National Trust out of more than £1m through false invoices. His sons were also found guilty of two charges relating to ‘them knowing – or at least suspecting – the money generated from their own companies by their father was the proceeds of crime’.
So what should charities be doing
to prevent such frauds taking place in the first place? There are some obvious steps, especially for
smaller charities which may not have the resources to put in place
sophisticated anti-fraud measures.
The first is to ensure that there
is not an over-reliance on one single person to oversee financial matters. Often this kind of insider fraud is committed
by individuals who have manoeuvred themselves into a position where they and
only they have oversight of what the charity is spending, enabling them to
cover up their activity for significant periods.
The second strategy is to ensure
that as an employer, you are looking out for possible ‘red flags’ which might
indicate the kind of financial need which often drives such fraudulent
activity. Particular things to look out
for include gambling addiction (not so easy to spot, admittedly), major changes
in an employee’s personal life such as the break-up of a relationship, and lifestyle
changes which seem incompatible with an employee’s income such as expensive
holidays or flash cars.
None of these things mean that a
person is committing fraud, but they do indicate a heightened risk, and being
aware of that risk enables trustees to be extra vigilant.
A key part of mitigating such risks
is ensuring that your charity has a quality wellbeing programme for staff,
which can provide support to prevent problems escalating to the point where a
staff member feels out of control.
As ever, the Charity Commission has
some very useful guidance for trustees on preventing fraud, and central to that
are ten questions for trustees to ask themselves, which are worth repeating
here. They should be asking themselves
whether they:
understand what fraud is and what their
responsibilities are?
understand their financial systems and data, and
what ‘normal’ looks like?
encourage staff and volunteers to voice
concerns?
run process test checks and observe jobs in
action?
promote fraud awareness and understanding?
conduct an annual fraud risk review?
conduct pre-employment screening and in-service
checks on staff?
have regular and frank conversations with
delivery partners?
have a response plan ready so that everyone
knows what to do?
have an anti-fraud policy and code of ethics?
Charity trustees have a duty to manage their organisation’s finances responsibly, and that includes making sure that funds are protected from fraud. It is a sad fact that fraud will always be a risk, and there has never been a more important time to guard against it.
The full Charity Commission guidance on
protecting your charity from fraud can be found on the GOV.UK website.
