As 2023’s Charity Fraud Awareness Week begins, the latest Charity Fraud Report reveals that fraud in the charity sector is on the rise.
Nearly two-thirds of UK charities report that the cost-of-living crisis has heightened fraud risks, with a third experiencing more fraud incidents this year than in 2022. This upsurge in fraudulent activities comes at a time when more people depend on charitable organisations.
The report, a collaborative effort between the Fraud Advisory Panel and BDO, indicates that 43% of charities encountered fraud or attempted fraud this year, a significant increase from 36% last year. Additionally, 13% of these charities faced more than ten fraud incidents. The impact of fraud isn’t just financial – 92% of charities reported monetary losses, but there’s also a significant toll on morale, affecting staff, volunteers, and trustees, as reported by 45% of respondents.
The most common fraud type remains the misappropriation of cash or assets, rising from 35% to 42% in one year. Notably, expenses and subsistence fraud more than doubled, from 15% to 35%, indicating a need to focus on internal risks. Other fraud types, like authorised push payment fraud, have also seen a sharp rise, from 19% to 33%.
With 64% of charities predicting an increase in fraud risks over the next year, especially in cyber-related areas such as phishing, the report emphasises the importance of anti-fraud and cyber security policies. Currently, 76% of charities have an anti-fraud policy, and 73% have a cyber security policy. Kristina Kopic, ICAEW’s Head of Charity and Voluntary Sector, said:
“Fraud can undermine morale within charity teams, not least because around 50% of detected frauds were perpetrated by insiders such as staff, trustees or other volunteers. In addition, valuable staff time is diverted when charity leaders navigate with the reputational and financial consequences of fraud.
ICAEW members who serve charities as trustees, employees or advisers have a key role to play in strengthening controls that help to safeguard charitable funds. I would encourage all charities to use the Charity Commission’s guidance and checklist on internal financial controls to review if their control framework is robust and consider new threats posed by emerging technologies.”
A webinar on charity fraud for ICAEW’s Charity Community on 1st December will tackle three common threats and look at the impact of three real-life fraud incidents on charities.