Fraud in the Charity Sector

With fraudsters becoming ever more innovative and sophisticated, the threat posed by fraud to the charity sector cannot be underestimated. Police have confirmed that several charities have fallen victim to “vishing” (also known as voice phishing) this summer alone, where fraudsters represent themselves in a phone call as bank representatives calling about fraudulent activity on an account in order to persuade victims to hand over key account information. Most notably Highland Hospice in Scotland were scammed out of approximately half a million pounds in late July of this year.

Police advise charities to be especially wary of unsolicited calls from persons claiming to be from their bank, bearing in mind that the widespread use of VoIP phone systems enables fraudsters to choose the caller ID that appears on the recipient’s phone. In the wake of the Highland Hospice case, Police Scotland recommended taking the following practical steps if you are on the receiving end of such a phone call:

1. Always double check numbers you’re given to call back on or call through the main customer care number for the organisation and ask to be put through;
2. If you decide to ring back and verify the call it is advisable to do so on a different phone line like another landline or your mobile; and
3. If you are still unsure, consider visiting your local branch instead of speaking to someone over the phone.

In the current climate, it is clear that charities need to be proactive in reducing the risk of fraud generally, whether it is “vishing”, unauthorised fundraising or simple over-charging by contractors. The Charity Finance Group estimates that fraud costs the sector as a whole £1.9bn each year, and that each organisation on average loses over 5% of its expenditure to fraud.

As part of its Counter Fraud Campaign, CFG suggests that charities take the following steps:

1. Consult relevant staff, volunteers and Trustees on what types of fraud the charity could be at risk of and what needs to be done to prevent such incidents;
2. Create a Fraud Policy for your organisation;
3. Ensure all Trustees are aware of, and understand their legal duty to guard the charity’s assets and how a counter fraud policy is an essential part of this duty;
4. Appoint a key person (whether staff member, volunteer or Trustee) to be responsible for fraud;
5. Share your fraud policy with all staff, volunteers and Trustees so that they fully understand what they need to do if they suspect the organisation is a victim of fraud. This will need to be done annually and when new staff are employed; and
6. Assess annually how well the fraud policy is working and take into account any new risks.

Charities who promise to take these steps can apply to the CFG for a Counter Fraud Pledge badge which can be added to their website to let their supporters and beneficiaries know they are committed to thwarting fraud. Further advice on protecting your charity against fraud is available on the CFG’s website at:

http://www.cfg.org.uk/resources/Publications/~/media/Files/News/CF240_SmallCharitiesGuide.pdf .

If you would like to discuss any issues raised in this article further, please contact our charity law solicitors on 01895 207862 or email charities@ibblaw.co.uk.