This website uses cookies for anonymised analytics and for account authentication. See our privacy and cookies policies for more information.

The voice of Scotland’s vibrant voluntary sector

Published by Scottish Council for Voluntary Organisations

TFN is published by the Scottish Council for Voluntary Organisations, Mansfield Traquair Centre, 15 Mansfield Place, Edinburgh, EH3 6BB. The Scottish Council for Voluntary Organisations (SCVO) is a Scottish Charitable Incorporated Organisation. Registration number SC003558.

Being fraud savvy

This opinion piece is over 10 years old

One in ten charities reported fraud last year. Campbell McLundie of Scott-Moncrieff says charities need to be more diligent.

Campbell McLundie, partner, Scott-Moncrieff business advisers and accountants
Campbell McLundie, partner, Scott-Moncrieff business advisers and accountants

According to the government’s anti-fraud Indicator, fraud could be costing the charity sector £117 million a year with only £30 million of this being reported.

From diversion and misuse of funds to petty theft and complex scams, charities need to be on top of these issues if they are to enjoy the continued confidence of donors, client groups and potential donors – which is after all, a charity’s lifeblood.

In hard times, charities feel the pain more than most. With one in ten charities reporting fraud last year, it is crucial for organisations to have an understanding of fraud and its prevention.

Although most of us couldn’t conceive of doing it, people commit fraud for a number of reasons. Perhaps the reward is too attractive to resist, or personal grievances make the act seem justified. Sometimes it’s because an easy opportunity presents itself and the chances of detection are perceived as unlikely. In the majority of cases, the fraud is less personal, and an organisation is randomly targeted by external fraudsters, who are often very organised, and commonly using the internet for their own ends.

Whatever the reason, there are measures that charities and small organisations can take to protect themselves.

The best anti-fraud measures are those which create layers, through which it is hard for the fraudster to infiltrate

There are key areas within the daily run of business that are more susceptible to fraud, with the most common being: cash handling, payroll and expenses, grant claims, purchasing and contracting, management of assets and handling of sensitive information, such as identity.

The ways in which these areas are exploited are different, but could include changing of supplier account details, misuse of electronic banking information, duplicating invoices, mispricing goods or services and inappropriate procurement.

The best anti-fraud measures are those which create layers, through which it is hard for the fraudster to infiltrate. In an efficient internal process, one layer may be compromised, but the next could put a stop to criminal efforts.

Setting up a number of lines of defence that would outfox even the craftiest fraudster is a sensible precautionary measure, and doesn’t indicate broad suspicion; rather it is an indicator of a well-managed organisation. These lines of defence could include a series of internal and management controls, monitoring and reporting controls, key audit points, inspections and Board or senior management scrutiny.

Prevention is always better than the cure, and having sound internal systems, efficient management and fraud indicators will all go a long way to preventing losses. However, should something be amiss, a determined commitment to decisive action is a must, including the involvement of third party agencies such as regulators or the police.

The threat of fraud is on the increase, and everyone is at risk. However, that risk can be limited with effective risk management processes. Fraudsters are more likely to target charities that they perceive to be less diligent or have ineffective controls.

Always focus on prevention and detection, but clear deterrents, commitment to investigation, sanctions and redress creates a strong circle that any would-be swindler would think twice about trying to break.