Tackling fraud in the charity sector: Steps for leaders to protect their organisations

Fraud within the charity sector is a serious concern, costing an estimated £1.9 billion each year.

These losses not only divert valuable funds away from beneficiaries but can also erode trust and undermine the very purpose of these organisations.

Despite many charities leading the way with robust counter-fraud policies, others continue to face challenges from an evolving landscape of criminal threats.

To address this, CFG has created the Counter Fraud Pledge—a resource for charities to strengthen their defences against fraud.

The pledge acknowledges the ongoing efforts to combat fraud while providing clear steps that charities can implement to protect themselves.

However, as fraud becomes increasingly sophisticated, leaders must proactively address these risks, ensuring preventative measures are in place before incidents occur.

The reality of fraud in the charity sector

No leader wants their organisation to fall victim to fraud. Yet, fraud affects all types of organisations, and charities are far from immune.

Action Fraud’s recent report highlighted that £2.7 million was diverted from charities in 2023 alone, with 501 cases reported. These figures demonstrate that fraud remains a significant issue that can’t be ignored.

Waiting until fraud is discovered often results in irreparable reputational and financial damage – the time for preventative action is now.

Why charities may be vulnerable

A combination of recent changes in the workplace has increased the sector’s vulnerability. Flexible working patterns, largely adopted since the pandemic, have isolated employees who once worked closely together, reducing the natural peer-checking that often identifies irregularities. This isolation, coupled with today’s high cost of living, can create circumstances where individuals might feel tempted to commit fraud.

While charities may also face external fraud risks, internal fraud requires particular attention.

Continuous improvements in due diligence and cybersecurity have bolstered external fraud defences, but internal vulnerabilities persist, and leaders must be vigilant.

Practical steps to mitigate the risk of fraud

To help charities strengthen their fraud prevention practices, here are several key steps:

1. Implement effective controls and review regularly
   Having fraud prevention measures is essential, but they must be actively implemented and regularly reviewed. Controls that are simply shelved won’t protect against evolving risks. Leaders should ensure policies are enforced and that they remain appropriate as the organisation’s circumstances change.
2. Foster an organisational culture of transparency
   Building a culture of earned trust and open communication is crucial. Team members, regardless of their position, should feel empowered to report concerns without fear. Ensure that junior members are aware of clear reporting procedures and avoid creating an environment where power is concentrated in the hands of a few.
3. Conduct objective risk assessments
   Regular, objective assessments of internal practices can highlight where vulnerabilities may exist.  An external perspective often brings to light issues that might go unnoticed by internal teams.
4. Prepare a response plan
   Having a clear plan to respond to fraud, should it occur, is critical. A well-prepared response strategy includes communication protocols to manage stakeholder expectations and restore trust.

With these steps, charities can take meaningful strides in protecting their funds, reputation, and mission.

Taking action now will not only safeguard your organisation but also ensure that the funds you work so hard to raise reach those who need them most.

For advice on effective fraud controls within your organisation please get in touch.