Five ways you can protect your charity from fraud

Despite charities being as vulnerable to fraud as any other sector, many are not well equipped to handle it when it happens. But what can you do about it? We turned to the experts to find out.

Incidents of corruption and fraud in charities are among some of the most common compliance-breaches reported to the Australian Charities and Not-for-profits Commission, data shows.

The charity watchdog is using Charity Fraud Awareness Week to urge charities to protect themselves.   

Oliver May is an expert in NFP corruption and fraud. He told Pro Bono News that similarly to organisations in the public and private sectors, payroll and remuneration fraud, corruption, conflicts of interest and bribery, commonly affect charities. 

But unlike the private and public sectors, charities are less likely to invest in measures to stop fraud happening in the first place. 

“Charities have a particular type of vulnerability that comes from a culture of trust,” May said.        

He said to tackle the problem, the sector needs to look at their internal structure and take a holistic view of the issue. 

What are your risks? 

May said that the starting point for all charities is to look at how and where fraud might happen, and how you might be able to nip it in the bud. 

“You need to be thinking about the kinds of activities your charity does, and where it does them. From there, think about how the fraud risks might materialise in that context,” May said. 

Awareness is key 

Making sure everyone in the organisation knows what fraud looks like, and how they can report it, is a massive part of stopping it spreading in your organisation. 

“A policy that spells out what fraud is so people can identify it, who they should report it to, how will the charity respond and why it is bad for the mission of the charity is all really important,” May said. 

He said talking about fraud within your organisation and to other charities was an effective way to stamp out the issue on a bigger scale.   

“Fraud, like all forms of corruption and abuse, grows in darkness. So you need to be talking to other charities about this issue because sunlight is the best disinfectant,” he said.

“We need to be really open about these risks so that we can share information about how to get better at dealing with them.” 

Double, and then triple check

Jessica Horey, ACNC acting director of compliance, said there should be various checks and balances in place so that nothing suspicious is able to slip through the cracks. 

This includes making sure all accounts are signed off twice and investigating invoices that don’t look quite right.      

“We were told a story where a charity was sent an invoice from their CEO’s email, but when they did a bit of digging, they realised that the CEO was on a plane so it couldn’t possibly have come from him,” Horey told Pro Bono News. 

“Even if it looks legitimate, it’s always worth checking twice.” 

More than one person on the job  

For smaller or even medium sized charities, one-person-run departments are common place. But Horey said having at least one other person who knows how to do the job is important – especially when it comes to the person in charge of finances. 

“Often there’ll be one person doing the finance, and they’ll have done that job for a long time, but it’s really important to actually have someone else who knows what’s going on so they can check up on them,” she said. 

What if it’s not your fault? 

A lot of the time, fraud happens within the four walls of a charity’s building. But there are instances where scammers take advantage of the public’s trusting nature for their own financial benefits. 

Scammers may pose as a representative for a really well-known charity, or create a fake organisation to trick people into giving them money. 

In the 2018 financial year the ACCC’s Scamwatch received 996 reports of fake charity scams, with reported losses of $300,395 across the year. 

Unfortunately, this is a widespread problem that a single charity will not be able to fix, but May said there are steps you can take to notify your donors about the problem as soon as possible. 

“When charities discover that their name is being abused by scammers, they can make a note on their websites, issue a release or contact their subscribers so they get the word out,” he said. 

Is there anything else you can do? 

The ACNC has a Governance Toolkit available for free on its website with resources to help charities manage risks including financial abuse, cybersecurity and working with partners.

Check it out here.