Internal Fraud

According to figures provided by Action Fraud, losses reported to the organisation by charities reached almost £8m in 2018/19 with 1,057 charities reporting instances of fraud during that period, the average loss per case totalled £7,428.

Employee fraud accounted for the highest level of fraud losses, closely followed by abuse of a position of trust and mandate fraud.

What is insider fraud?

Insider fraud is committed by somebody within the charity, such as a trustee, employee or volunteer. Research suggests that the fraud is committed due to the absence of appropriate controls. Examples of insider fraud include financial and accounting fraud, unauthorised payments to individuals, inflated expenses and the theft of information.

The Charity Commission published a report in 2018 and found that insider fraud was committed in the following ratios – 43% by an employee, 33% by a trustee, 10% by a volunteer and 14% by others. The report found that the factors contributing to the fraud were:

  • Excessive trust or responsibility placed on one individual -43%
  • Lack of challenge or oversight – 24%
  • Absence of controls or existing controls poorly applied – 24%
  • Combination of more than one factor -5%

How do you combat insider fraud?

  • Ensure good governance and an effective culture exists within your charity.
  • Ensure you recruit the right people by carrying out appropriate employment checks proportionate to the level of fraud risk of individual posts.
  • Adopt suitable controls, policies and procedures.
  • Aim to develop a counter fraud culture within the charity, so that trustees, staff and volunteers feel empowered to raise concerns about fraud.
  • Ensure where possible segregation of duties are in place.

For detailed advice, trustees can look at the Commission’s internal control checklist and charities – fraud and financial crime.