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30 Oct 2018 News

Charity Fraud Awareness

While you were enjoying our long hot summer, which now seems like a distant memory, you may have missed OSCR’s new guidelines published in June – “Fraud: Reducing the risks in your charity”  – which are of particular interest as it is Charity Fraud Awareness Week 22 – 26 October.

Many think victims of fraud to be vulnerable people duped by cold callers or ‘too good to be true’ prizes in competitions, the reality is that even charities can be targets and victims of fraud. This can be from an internal or external source, but it is more likely to be internal where a charity puts too much trust and/or responsibility in one individual or does not carry out sufficient oversight of their activities. Transparency and a culture which promotes honesty and holding each other accountable is essential to mitigating vulnerabilities within an organisation.

As a charity trustee, you are expected to operate with the care and diligence reasonably expected of a person managing another’s affairs – likely to be a higher level of care than you would when managing your own finances and affairs. In order to protect the charity’s resources and not put the charity’s assets at risk, it is advisable that you:
1. Understand where your charity is vulnerable to fraud; and
2. Effectively manage identified risks.
Despite concerted efforts, your charity can never be immune to the risk of financial fraud and abuse. However, comprehensive internal financial controls are crucial to mitigating these risks. As a charity trustee, you should be aiming to:
1. Identify the risks your charity faces from fraud;
2. Assess particular vulnerabilities; and
3. Manage and/or mitigate these risks as part of your routine governance of the charity

The first step in reducing the risk of fraud to your charity is developing an Anti-Fraud Policy. This should be appropriate and proportionate to the size and scale of your charity, and you must take the risk of fraud seriously and act to protect your charity, including its assets and reputation.

Secondly, putting in place significant financial controls are critical to mitigating the risks of fraud to your charity. Where these controls are correctly set up, they will not only protect the assets of the charity and the reputation, but also you as a charity trustee. There are several areas which you need to consider, including:
1. Collective responsibility;
2. Setting up a Finance Committee;
3. Separation of duties to avoid any one person having sole responsibility for financial transactions;
4. Documentation of financial procedures;
5. Where possible, avoiding the use of cash;
6. Utilising banking services to ensure your charity’s funds are secure – for example additional authorisation required;
7. Cheque payments should have a minimum of two signatories;
8. Automated payments (ie. Direct Debits & Standing Orders) should be regularly reviewed;
9. Internet banking and online payments; and
10. Credit cards.

Please see OSCR’s guidelines for full details on how financial controls can play a significant role in protecting your charity and you as a charity trustee:

How OSCR looks at fraud

OSCR’s main concern when fraud occurs is that the charity trustees act appropriately and in accordance with their duties. Where the trustees have acted openly, honestly and reasonably, OSCR is unlikely to treat this as misconduct. However, OSCR will look beyond the actions of the trustees to determine whether suitable controls, such as those above, are in place and what actions have been taken since the fraud occurred to manage the effects upon the charity and the prevent it from happening again. OSCR can decide that misconduct has occurred where the charity trustees have not carried out their duties, and have the power to take action proportionate to the situation.
Trustees should notify OSCR of any fraudulent event which is likely to have a significant impact upon their charity. This demonstrates to OSCR that the trustees have identified the issue and are taking appropriate action to deal with it and mitigating future risks. There is no legal requirement for notifiable events to be reported to OSCR, although failure to do so could well be considered as misconduct.

It is in your and your charity’s interest to report notifiable events to OSCR – as their assessment of fraud incidents across the sector aid them in improving their support for charities through their guidance and highlight where they need to focus their activities in ensuring the success of your charity. In our experience OSCR are very reasonable in their response to notifiable events. It allows the charity to “get in first” with their explanation and can be helpful if concerns are later raised.

It is up to the charity trustees to ensure that they carry out their duties to a high standard to ensure that the risks of fraud and abuse are mitigated as much as possible, and should the worst happen, that they report the notifiable event to OSCR in order to receive assistance in preventing future risks.

If you would like to know more about how Gillespie Macandrew can assist you with reducing the risks of fraud within your charity, please contact our Head of Charities, Lianne Lodge.

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