Safeguarding Your Charity: Essential Fraud Prevention Strategies for Trustees

Charities play a vital role in our society, and maintaining public trust is essential. Even small charities are at risk of fraud, especially those with limited resources and reliance on digital fundraising. This guide has been developed to help trustees of small charities understand the risks of fraud and implement simple, effective measures to protect their organisations.

Understanding Charity Fraud

Fraud involves intentional deception to gain an unfair or unlawful advantage. In a charity context, this can manifest as:
– Internal Fraud: e.g., false expense claims or misuse of funds by staff or volunteers
– External Fraud: e.g., phishing attacks or supplier scams
– Cyber Fraud: e.g., data breaches, ransomware, or fraudulent donations

The Fraud Triangle

Fraud typically arises when three elements are present:
– Pressure: Financial or personal stress
– Opportunity: Weak controls or oversight
– Rationalisation: The person justifies their actions

Understanding these can help trustees spot and stop fraud before it happens.

Trustee Responsibilities

Trustees have a legal duty to protect their charity’s assets. They should:
– Implement strong governance and oversight
– Regularly review financial activity
– Foster a culture of integrity
– Keep up to date with fraud prevention techniques

Preventative Measures

1. Robust Internal Controls

– Segregate financial duties among staff
– Require dual approval for large transactions
– Regularly reconcile bank accounts and review statements
– Keep an asset register

2. Cybersecurity Protocols

– Use secure, unique passwords and multi-factor authentication
– Back up data regularly
– Train staff on phishing and online threats
– Use antivirus software and keep systems up to date

3. Staff and Volunteer Training

– Educate staff on fraud risks and how to report them
– Encourage an open culture with zero tolerance for dishonesty
– Conduct inductions and periodic refreshers

4. Whistleblower Policies

– Provide a safe way for individuals to report concerns
– Protect whistleblowers from retaliation
– Take all reports seriously and investigate promptly

Responding to Fraud

If fraud is suspected:
– Act quickly to limit further damage
– Preserve any evidence (emails, documents, bank records)
– Report the fraud to Action Fraud and the Charity Commission
– Review what went wrong and strengthen controls

Further Resources

– Charity Commission: https://www.gov.uk/government/publications/protecting-charities-from-harm
– Action Fraud: https://www.actionfraud.police.uk/
– National Cyber Security Centre (NCSC): https://www.ncsc.gov.uk/section/information-for/charities
– Fraud Advisory Panel: https://www.fraudadvisorypanel.org/

Fraud can happen to any organisation. By being proactive, staying vigilant, and embedding fraud prevention into your charity’s culture, trustees can ensure they are fulfilling their duties and protecting the vital work their organisations do in the community.