Protecting your charity from internal fraud
Monday, 25 February 2019
Charity trustees tend to delegate management and the day-to-day running of the charity to its employees and management team. However, ultimately the responsibility lies with trustees, therefore they must make sure that the charity has systems and controls which are designed to mitigate the risk of fraud.
Unfortunately, it’s a fact that significant fraud in charities is sometimes perpetrated by senior finance staff or even the chief executive officer (CEO).
Trustees need to give the CEO and senior leadership team sufficient freedom to operate, but too little monitoring can create the environment for fraud to occur. The difficulty is getting the right balance between freedom and maintaining board oversight.
The key to protecting the charity against internal fraud is having sound systems and controls, and to regularly check and test these controls are being operated as designed and documented.
Risk areas and prevention
Bank transactions are a higher risk area. Simple controls, such as dual authorisation of cheques and BACS payments, can significantly reduce the risk.
In addition, basic checks, such as periodically checking that the cash reported at the bank in the charity’s management accounts actually corresponds to what the bank statements say, can identify problems before they get out of hand.
Monitoring the charity’s expenditure against budgets, including for capital projects, may identify unusual spending patterns early that should be challenged.
Regular communication with key personnel and other staff beyond the CEO can make sure the trustees have the full picture.
Aim for a culture within the charity where policies and procedures are followed, and where people don’t simply do as they are asked but will question something if it appears unusual. Back this up with a robust whistleblowing policy.
How do I find out more?
This article is from our publication, ‘Using Conflict as a Catalyst for Change’, a guide to help you embrace, manage and mitigate conflict within your charity. You can read more about safeguarding your charity against fraud here.
If you have any questions or if you would like to discuss this with us in more detail, please speak to your usual Larking Gowen contact. Call 0330 024 0888 or email email@example.com