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Sector fraud tops £1.3bn a year, says National Fraud Authority

Finance | Tania Mason | 27 Jan 2011

The charity sector loses £1.3bn a year to fraud, new estimates from the National Fraud Authority suggest.

The National Fraud Authority (NFA) has today published its second Annual Fraud Indicator which declares that fraud is costing the UK over £38bn each year, and 3 per cent of that total occurs within charities.

The £1.3bn figure represents 2.4 per cent of the sector’s total turnover and is in a totally different league to the estimate of £32.2m that the NFA produced this time last year.

It is also vastly higher than the £21m worth of fraud that was reported to the Charity Commission last year through serious incident reporting.

The NFA said its new estimate for the charity sector was much more likely to be closer to the true figure than last year’s, because this year it had surveyed sector organisations about their experiences of fraudulent activity.

Of the 10,000 charities polled, more than 1,000 responded, allowing the NFA to paint a much more accurate picture of the problem.

Charity Commission chief executive Sam Younger said today’s report should act as a “wake-up call to any charity who thinks it will never happen to them”.

“We have previously said that fraud in charities has been under-reported, which is reflected in today’s report.  However it also shows that instances of charity fraud remain low and the public can be assured that the vast majority of charitable money is going straight to good causes,” he said.

The Commission has produced ten ‘top tips’ for trustees of smaller charities to protect themselves against fraud, taken from its guidance CC8, Internal Financial Controls:

1.      Make sure you have access to accurate and up-to-date financial information and monitor the charity’s financial performance against its budget
2.      Make sure that cheques and cash are kept securely, banked promptly and recorded in the accounting records
3.      Ensure cheque-books are kept in a secure place – do not sign blank cheques
4.      Make sure there are proper controls in place to protect income received by post and bank it as soon as possible
5.      Make sure there are proper controls in place in relation to fundraising events, such as making sure two people handle and record the money received, that money is banked as soon as possible and that collection boxes are numbered and recorded
6.      Keep proper records when claiming gift aid – HMRC gives advice on what should be recorded
7.      Make sure you have a clear policy on paying expenses to staff and volunteers and make sure they are authorised by someone other than the claimant
8.      Make sure you have controls to ensure that all income from trading is recorded and received
9.      Have monitoring procedures in place to make sure grants have been used for the agreed purposes
10.  Report any suspected fraud to the police and to the Charity Commission

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