Understanding charity fraud: protecting donations and charitable organisations
Fraud takes many forms and is a widespread threat. For charitable organisations, preventing internal fraud, neutralising external fraud threats and ensuring donor trust is critical.
BDO's Charity Fraud Report (2023) reported that over one third of all charities questioned said that they had experienced more instances of fraud within the previous 12 months than in the prior year.
92% of charities who suffered a fraud confirm that they had suffered financial losses as a result. Whilst that is highly significant, financial loss is only part of the picture. Fraud can undermine public trust in charitable organisations and adversely affect legitimate fund raising efforts. Taking measures to anticipate and prevent fraud at the outset are therefore vital - and always preferable to having to try to cure the position.
What is charity fraud?
Charity fraud can occur when individuals or groups pose as legitimate charities, or misuse genuine charitable funds, to misappropriate donations for personal gain. It can take many forms, from fake charities soliciting donations to misuse of funds by trustees or employees of bona fide charitable organisations. Losses can be immediate and severe, and it is not always possible to trace and recover all of the lost funds - even if prompt action is taken - when fraud occurs.
Common types of charity fraud
- Fake Charity Websites and Appeals: Fraudsters can create sophisticated fake websites and/or social media pages that closely resemble those of legitimate charities and/or appeal to a trending cause, such as disaster relief or humanitarian crises. These fraudulent sites or appeals are designed to solicit donations from unsuspecting individuals, who mistakenly believe they are contributing to genuine causes.
- Misuse of Charity Funds: Fraud within legitimate charities can occur when trustees, employees or those in management positions misuse funds intended for charitable purposes. This can involve personal use/diversion of charitable funds (eg via invoice fraud or change of bank details scams) or spending that does not align with the charity’s mission or legal obligations. It is significant that 50% of detected frauds referred to in BDO's Charity Fraud Report were said to have been perpetrated by staff members, volunteers or trustees. This means that good systems and controls are key.
- Phishing Scams: Fraudsters may send out mass emails, text messages, or social media posts claiming to represent a charity and asking for donations. These phishing scams often provide fake links that, when clicked, either solicit direct payments or steal personal information from the victim, to obtain details which are later used to facilitate fraud (e.g. APP fraud).
- Telephone Scams: Another common (scam) method is for fraudsters to call individuals directly, pretending to be from a charity. They may use high-pressure tactics or emotional appeals to encourage donations, often asking for sensitive financial details that can later be used for fraudulent purposes.
- Bogus Fundraising Events: Fraudsters may organise fake charity events such as auctions, dinners, or marathons, where the funds raised are never intended to go to a legitimate cause. These events can appear highly professional, making it difficult for donors to realise they’ve been defrauded.
Legal framework and consequences
As well as fraud being a criminal offence, charities can also use civil proceedings to attempt to recover losses and this is often done in conjunction with relevant authorities (following a report to Action Fraud and the Charity Commission - (see further below) alongside criminal proceedings. This could include urgent applications to freeze bank accounts, obtaining search or disclosure orders and claims arising out of misrepresentation, deceit, theft, and/or knowing receipt.
The Charity Commission for England and Wales plays a crucial role in regulating charities and ensuring that they comply with the law. It has the authority to investigate concerns related to fraud and misuse of charitable funds and can take enforcement action where necessary. It is therefore vital that Charity Commission reporting obligations are always considered.
How charitable organisations can safeguard against fraud
Some non-exhaustive Measures to implement include:
- Strong Governance and Internal Controls: Ensuring you have a robust governance structure in place, with clear policies for financial oversight and spending/payment authorisation.
- Transparency and Reporting: Being transparent about how donations are spent and reporting regularly to the Charity Commission.
- Staff and Volunteer Training: Educating staff and volunteers about common fraud risks and how to spot warning signs. This helps ensure that everyone involved in the charity understands their responsibilities in safeguarding its assets.
- Utilise Secure Technology: Investing in secure online platforms for donations and ensuring that any data collected is protected under data privacy laws can help prevent cyber fraud.
How donors can protect themselves
As a donor, it’s essential to be vigilant when giving to charities, particularly in response to urgent or emotional appeals. Some donor tips include:
- Verify the Charity’s Registration: Before donating, check if the charity is registered with the Charity Commission.
- Give Directly Through Official Channels: Always donate directly through the charity’s official website or verified fundraising platforms.
- Research Before Donating: Take time to research the charity. Check reviews, ratings, and their transparency regarding how donations are used.
- Be Wary of High-Pressure Tactics: Scammers often use urgency to pressure individuals into donating immediately. Legitimate charities rarely resort to these tactics. If you feel rushed or uncomfortable, take a step back and verify the organisation before giving.
Summary
By understanding the methods fraudsters use and taking preventive measures, both donors and charities can safeguard against fraud occurring, ensuring that donations reach their intended recipients and have the intended impact. If charity fraud is suspected, it's important to seek legal advice immediately, report it to the Charity Commission and law enforcement agencies (via Action Fraud).