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Charity begins at home...or in Syria?

Following the seizure of a mixture of euros, US dollars and pound sterling worth more than £45,000 by Kent Police at the Port of Dover in December 2012, eight individuals have been arrested in early March 2014 in connection with Police investigations into the fraudulent use of funds from four UK-based Syrian aid charities.

These individuals have recently been released on bail until 1 September 2014 whilst investigations continue to ensure funds donated by the public reach their intended destination and are not used in connection with criminal activity.

Implications for Charities

Whilst trustees and charity managers may be breathing a sigh of relief that their charity is not in the spotlight, this does not mean to say that it will never be. It is clear from the current investigations into the Syrian aid charities that charities are not immune from fraudulent activities.

Charities that fall victim to fraud not only face monetary losses, but also have to consider the impact of fraud on their reputation and the level of public trust and confidence. The responsibility for governance and safeguarding charity assets lies with the trustees and managers of charities. It is, therefore vital for these individuals to be alert to fraud and the steps that they can take to reduce the risk of their charity being a victim of fraud. It is important to consider what takes place in practice as well as having adequate counter fraud strategies in place.

What does the law say?

Trustees and managers of charities are legally required to:

  • Ensure there are appropriate internal and financial controls in place to make sure all funds are accounted for and spent in line with the charity's aims.
  • Keep proper and adequate financial records for both the receipt and use of all funds together with audit trails of decisions made.
  • Take any actions necessary to protect charity's funds.
  • Act responsibly and within the interests of the charity if fraud occurs. This includes reporting to the relevant authorities promptly where appropriate and ensuring the charity's funds are secure.

In complying with these legal requirements, trustees and managers have to ensure that they act in the best interests of their charity and take appropriate steps to protect against fraud.

But what constitutes "appropriate steps"? This all depends on the size of your charity and the circumstances involved and, therefore, what steps are appropriate to take can be a difficult decision for trustees and managers.

Appropriate Steps and Measures

As they say, prevention is better than cure, and it is certainly no different for charities. It is good practice for charities to have in place the following measures to prevent fraud and promptly address any discovery of fraud:

  • Anti-fraud policy and training staff on the content of the policy;
  • Whistleblowing policy and helpline;
  • Regular risk assessments;
  • Robust financial and recruitment procedures.

Anti-Fraud Policy and Training

An anti-fraud policy sets out the charity's position on fraud. It is good practice for a charity to document its stance on fraud risk management.

As a bare minimum, a charity's anti-fraud policy should include:

  • A statement setting out what fraud means to the charity and use of case examples.
  • Responsibilities of staff and trustees in preventing and detecting fraud including cooperating with any investigations.
  • A procedure setting out how the charity will respond to fraud. Flowcharts can be a good visual aid in setting out procedures.
  • How individuals can report concerns and suspicions of fraud.

It is important to ensure an anti-fraud policy is suitable and applicable to your charity so be careful about using templates. Seek legal advice if you are unsure about what your charity's anti-fraud policy should focus on so your policy can be tailored appropriately.

Drafting an anti-fraud policy is all well and good, but it is no good being printed out and left in a drawer! It must be communicated to all staff so that everyone is clear about the charity's stance on fraud from the outset. Set up a training session for staff as well as the Board (or a series of sessions depending on the size of your charity) and ensure it is carried out in practice.

Whistleblowing Policy

Trustees and charity managers must ensure that all staff and volunteers know what to do if they have concerns about fraud within the charity or suspect fraudulent activity being carried out. Staff need to be encouraged to speak up and a whistleblowing policy can assist in this regard.

A whistleblowing policy should set out procedures that the charity has adopted for staff and volunteers to express concerns about any type of crime, not just fraud, as well as a statement on confidentiality/anonymity for staff. Larger charities may wish to adopt a whistleblowing helpline for staff and volunteers to use, which may be managed by a charity's legal advisors, for example.

Frequent Risk Assessments

It is important for charities to regularly monitor the risks associated with fraud to which these organisations may be exposed to. The format of such risk assessments will vary between charities, but is likely to include a discussion during trustee meetings about the current risks associated with fraud and ways to minimise these risks.

It is important that the information collated during these assessments is taken on board and implemented. Notes of such discussions should either be kept in the form of board minutes or as a separate document/register.

Robust Financial and Recruitment Procedures

Ensuring such procedures are in place is paramount for trustees to meet their legal duties to safeguard the charity's assets and manage risk. For example, robust controls are needed where cash is being handled.

As a minimum, trustees need to ensure that the following is addressed:

  • There is a segregation of duties for financial processes so no individual has sole responsibility for any single transaction.
  • Financial procedures are being followed and not overridden.
  • Accounts and bank statements are regularly reconciled and spot checks are carried out on all books and records.

If trustees and charity managers are unsure about what steps they should be adopting in order to manage the risk of fraud to their charity and require tailored advice, DWF has specific expertise in advising in this area.

This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.