Deterring fraud in charities

‘Charity begins at home’ is an old proverb but, all too often, rather than taking its intended meaning – charity is learnt in the home – unscrupulous fraudsters have no hesitation in ensuring charity begins and ends in their home.
Notwithstanding the risk of losses through a multitude of frauds ranging from funds being inappropriately spent, through to undeclared conflicts of interest and the creation of shell companies etc., the risk of fraud is also clearly present at the initial donation stage.
False representation 
Many fraudsters raise money under the banner (or a passing-off) of legitimate charities. In a special feature on clothing collections appearing in Fundraising Magazine, Michael Lomotey, director of charity bag collection company Clothes Aid, stated that more than 60 per cent of all charity bag collections undertaken in the UK are fraudulent – either distributed by unlicensed bogus operators or legitimately distributed bags are stolen. In response, the Textile Recycling Association has called for a register of licensed collectors. Other false representation includes illegitimate on-street and door-to-door ‘charity’ collectors and fake sites collecting online donations. 
Educate the public and raise awareness
Despite the very difficult nature of preventing and detecting fraudulent activity, much work is undertaken by charities to protect their branding and ensure funds raised under their names reach their intended recipients and beneficiaries.
Education of the general public to spot and report possible fraudulent behaviour is a key weapon for charities. You can provide guidance on:
  • the use and quality of collection bags, quality of literature, types of good requested and small print, etc;
  • checking charity collectors’ collection buckets are sealed, displaying the your charity’s name and registration number;
  • checking official badges/permits of door-to-door collectors and confirm the legitimacy with you, either online or over the ‘phone, before donating;
  • donating through your official website or other reputable routes such as JustGiving or Gift Aid and ensuring the payment/donation page is secure, etc.
Recovering lost funds
A number of charities are hugely successful in ensuring funds pledged but not received are recovered. Sometimes this involves legal action through a civil recovery process, making use of the county courts to chase and recover missing donations. Since 2016, 30 summonses have been issued against people who failed to deliver money originally raised in the charity’s name. As yet, none have been contested and every action has resulted in either a voluntary settlement or a court judgement in favour of the charity. Between 2015 and 2017 missing donations worth £168,788 were recovered in this way on behalf of one charity. In addition to being an efficient and low cost method of recovering monies, experience shows that small-scale civil actions (which can damage a person’s credit rating) can be a better deterrent than the threat of criminal action.
Such initiatives demonstrate that whilst fraud is a clear and ever-present threat to charities, much can be done to reduce losses. The constant drive to educate people in fraud awareness, indicators and reporting is pivotal; charities taking action where fraud is detected is critical in deterring would-be fraudsters going forward.
For an independent review of your current fraud prevention and detection processes, or support in investigating fraud and pursuing appropriate sanctions (criminal, civil, disciplinary and/or regulatory) should the worst happen, contact our specialist counter fraud team

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