Charities Lose Millions To Fraud

A UK national fraud reporting centre reveals a breath-taking figure of almost £8m lost by charities to fraud.

The staggering figures were exposed after Accountancy firm RSM retrieved the data following a freedom of information request to Action Fraud.

Broken down, UK charities had submitted 1,057 reports of fraud which totalled £7.85m in the year to March 2019 – which means the average amount lost per individual fraud case that was reported was £7,428.

Results from the statistical information found that employee fraud came out top with the biggest fraud losses of £1.68m, followed by abuse of a position of trust at £1.63m and lastly mandate fraud at £1.23m.

A case that involved an attorney abusing their position as a carer resulted in three well-known charities losing thousands. And charities were warned last year to watch out for CEO fraud, where a criminal poses as a senior figure within the organisation, requesting that funds are transferred.

The highest number of identified complaints were about mandate fraud (173), which is when an employee is tricked into switching a regular payment to a fraudster’s account, followed by employee fraud (95) and hacking (62).

The Solicitors Regulation Authority confirmed that everybody is now 20 times more likely to be a victim of cyber crime than a victim of in-person crime. Therefore, the implementation of a positive cyber culture in the workplace that cascades from the top down is crucial.

Implementing Cyber Essentials certification, which is a recommended Government-backed scheme can prevent cyber criminals from accessing a charity’s technology. It can protect the charity from data breaches and demonstrates to donors, other businesses and stakeholders that cyber security is top of the agenda – by protecting charities against 80% of common cyber attacks.

However, not everything can be done with technology though. Staff training surrounding due diligence and encouraging employees to raise concerns when they see something suspicious will help to cement the positive cyber security culture.

Industry professionals comment on the implications of fraud on the charity organisations and legacy giving and what steps could be taken to reduce scams.

Matthew Lagden, Chief Executive of the Institute of Legacy Management, said:

“With legacy income being worth more than £3bn a year for charities, there is clear potential for fraud. Sadly in any situation where people are dealing with large sums of money, a small number of people will always succumb to temptation. To the best of our knowledge, the incidence of fraud in relation to gifts to charity is very low, but we work very hard to ensure that our member charities do not lose money that they need for their vital services. This is why we provide training to our members in recognising and preventing fraud. As Probate becomes more digital, we know that the incidence of cyber fraud is increasing, which is why we encourage our members to protect themselves through Cyber Essentials and similar products.”

Chris Millward, Founder at Legacy Giving Expert, said:

“The increase in reported fraud losses by charities highlights the importance of having appropriate oversight in place when it comes to legacy administration.  Clear delegated authority and gift acceptance policies need to be in place to protect both individual and organisation.  It also demonstrates the key role Smee and Ford notification service – currently under review by HMCT service – plays in the avoidance of fraud.  Ensuring that charities are aware of their legal entitlement and have oversight of the administration to ensure appropriate legislation and guidance is adhered to by executors and that charity beneficiaries receive the money they are legally entitled to.  Charities also need to be sure that legacy administration is appropriately resourced in terms of technical knowledge and appropriate skills to ensure their interests are best represented; income optimised and reputations safeguarded.”

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