Every day thousands of Kiwis work for charities or volunteer their time to support their local communities and make this country a better place. Unfortunately, the charitable sector can sometimes be viewed as an easy target for criminals. With fraud and cybercrime on the rise, International Charity Fraud Awareness week was observed from 21 October to 25 October 2019 aimed to promote greater honesty and awareness of fraud and financial crimes in the charitable sector and to share strategies for preventing it. 

The week has generated shared knowledge which can help charities to learn from what has happened previously and prevent future fraud.

The Charities Commission have advised that there are over 27,000 registered charities in New Zealand and these charities have an annual income of $18 billion. Vigilance and awareness can go a long way toward preventing fraud and to protecting the charitable sector.

Principles for Tackling Fraud

The Charities Commission have prepared and promulgated a document setting out eight Guiding Principles for Tackling Fraud. The eight principles are:

1. Fraud will always happen – simply being a charity is no defence.
2. Fraud threats change constantly.
3. Prevention is (far) better than cure.
4. Trust is exploited by fraudsters.
5. Discovering fraud is a good thing.
6. Report every individual fraud.
7. Anti-fraud responses should be proportionate to the charity’s size, activities and fraud risks.
8. Fighting fraud is a job for everyone.

Damage

The officers of a charity will have an obligation to protect funds for the purposes that charity. In particular, officers must act in the interest of the charity, and must act with care and diligence. Officers must also follow the terms of your deed trust or your rules.

Fraud can reduce funds available for legitimate purposes and can have ongoing consequences for the reputation of the charity.

How does Fraud Occur?

In general terms fraud is wrongful dishonesty for personal gain. Fraud includes many forms of dishonesty or deceptive behavior and can occur in any charitable organisation. Fraud against a charity may be committed by a person from  within and organisation or by an external party.

Internal fraud may include the wrongful taking of funds or of donated items, diverting funds, claiming false or unauthorised expenses, tax evasion,  or submitting fraudulent applications for grants.

External Fraud may include submitting false invoices, unauthorised fundraising, or submitting fraudulent applications for grants. Fraud may also include grant applications which are based on a partial truth or may involve the misuse of funds distributed.

In some instances, fraud may be committed by an individual who is unknown to the charity who claims to represent an organisation. In this instance, having a strong brand and a high level of public trust may increase the risk. Larger charities may reduce this risk by being aware of their profile and by investigating any unusual reports or feedback.

Prevention

Putting in place strong processes around the collection and handling of donation and banking can help to detect and prevent fraud.

Key methods of Fraud Prevention can include:

1. Conducting due diligence on any party who proposes to fundraise for you charity;
2. Be observant for any appeals or fundraising that has not been approved by the charity;
3. Provide training and support for regular volunteers;
4. Work in groups or teams when processing donations;
5. Ensure that you have appropriate cyber security including strong passwords and anti-virous software as appropriate;
6. Verify transactions and have multiple people authorise payments;
7. Understand expenses and check that these are in order;
8. Ensure that account numbers are checked with the payee prior to making distributions or payments;
9. Never reimburse any person or entity before verifying that the payment is valid and cannot be cancelled;
10. Follow Anti-Money Laundering and Countering Financing of Terrorism;
11. Understand who may benefit from any significant contracts;
12. Divide duties so as to make it difficult for one person to commit fraud without detection;
13. Investigate any process which becomes complex or difficult to understand;
14. Maintain proper financial records;
15. Put processes in place to manage any conflicts of interest which may arise;
16. Implement a fraud policy and regular fraud training; and
17. Make sure your employees and volunteers feel comfortable and know that they will be protected when reporting suspicious behavior.

Charities which send funds overseas are particularly vulnerable to fraud and exploitation and will need to put further measures in place.

Further Information

The Charities Commission also runs a YouTube channel and publishes information regarding detection and prevention of fraud.

A Fraud Advisory Panel also offers resources and further advice on preventing fraud including e-learning resources. Some of the advice focuses on England, Wales, and Northern Ireland but will apply more generally internationally.

How we can help your Charity

Trustees Executors has a long and proud history as trustee of a number of charitable trusts throughout the country and have helped numerous individuals and organisations fulfil their charitable vision and leave a lasting legacy for many worthy causes.

We currently manage or advise on approximately $100m of investment assets for more than 130 charitable trusts. We can provide independent, professional trustee services and assist with accounting and compliance services.

Talk to our Private Wealth Team to find out more.

Please call 0800 878 783 or email [email protected]