Charities face persistent internal fraud threat, survey finds
Despite improvements in fraud awareness among charities, half of all detected charity fraud is still committed by internal perpetrators, according to a new report from accountancy and business advisory firm BDO and the Fraud Advisory Panel.
The survey of over 135 leaders from UK charities, published today as part of Charity Fraud Awareness Week, found that 42% of charities were victims of fraud over the last 12 months.
Troublingly, offences committed by staff, volunteers and trustees remain the most prevalent with 50% of detected frauds perpetrated by individuals within the organisation.
According to the report, the most common type of charity fraud was the misappropriation of cash or assets by staff and volunteers (40%). This was followed by payment diversion fraud, also known as authorised push payment (APP) fraud, experienced by a third of charities (33%). This type of fraud can happen when a fraudster impersonates the CEO and orders an urgent payment or pretends to be a supplier and creates or amends invoices, with the objective of diverting funds to bank accounts under their control.
Last year, at least £459m was lost by organisations to APP scams. However, there are routes for charities to recover some of these losses. The rules around financial recovery were updated on 7 October 2024 and now include a mandatory framework for compensation up to £85,000 which replaces the previous voluntary system.
Staff expenses fraud also remains high with over a quarter (29%) of charities experiencing it over the last 12 months.
Whilst the survey indicates that fraud prevention measures are working by detecting and acting on fraud early, 85% of charities still reported that they suffered a financial loss as a result of the fraud committed.
When looking at the total fraud losses over the last 12 months, over two thirds (69%) experienced losses under £100,000, up from 65% last year. However, 10% suffered a financial loss up to £1m, and 5% reported total losses exceeding £1m.
Tracey Kenworthy, counter fraud director at BDO, said: “While it’s encouraging to see the changes charities are implementing to both prevent and detect fraud, the persistent problem of insider fraud suggests more needs to be done.
“In the past, charities have been overly reliant on trust. Although our survey suggests that this is changing, the persistent problem of internal perpetrators highlights the importance of having robust internal controls and fostering an anti-fraud culture of openness and transparency.
“While charities have a more optimistic outlook for the coming 12 months, it’s important that they continue to tackle the fraud risks they are facing. The introduction of the Economic Crime and Corporate Transparency Act will provide a framework that some charities can leverage to strengthen their fraud prevention efforts.”
Sir David Green, chair of the Fraud Advisory Panel, adds: “This year’s Charity Fraud Report highlights the profound and long-lasting implications fraud has on charities of all sizes. Whilst there are positive and meaningful steps taking place to detect and prevent fraud, charities should not take their finger off the pulse when assessing fraud.”
Matthew Field, head of the Fraud Advisory Panel, said: “The 2024 Charity Fraud Report demonstrates how previous campaigns have helped charities to address the fraud risk. The ongoing commitment from BDO and representatives from across the public and private sector demonstrates the success that can be achieved when all work together. We extend our thanks to all who contributed to the survey, conference and campaign, and to BDO for their support with tackling charity fraud.”
The Economic Crime and Corporate Transparency Act failure to prevent fraud guidance was published by the Home Office on 6 November 2024. The legislation, which will impact some charities, aims to enhance transparency and combat economic crime.
Failure to prevent fraud is applicable if an organisation meets at least two of the three criteria:
- More than 250 employees
- More than £36 million turnover
- More than £18 million in assets
Organisations should ensure they take steps to review their fraud prevention processes, ensuring they have implemented any changes outlined in the Home Office guidance.
