The risk of fraud from within is a growing concern for charities, with the cost of living crisis and economic downturn becoming catalysts for fraudulent behaviour. BDO and Fraud Advisory Panel share insights from the latest Charity Fraud Survey 2022.
More than half of charities say that the risk of fraud is going to increase in the coming year - with the greatest risk coming from within.
The findings come from the 2022 Charity Fraud Report by BDO and the Fraud Advisory Panel, published in early December.
Fraud risks in 2022
This year's report shows that more than two thirds of those charities surveyed had experienced financial loss due to fraud.
There has also been a significant shift away from the external threats of fraud to internal threats. Although cybercrime and cybersecurity are still high on the risk agenda, more than half of reported frauds (55%) had been perpetrated by staff or volunteers.
Misappropriation of cash or assets by staff members or volunteers doubled in 2022 to become the most common type of fraud (43%). This was followed closely by staff expenses fraud (26%).
Only 23% of frauds were committed by an external party with no connection to the charity.
Nearly half of the survey respondents (40%) said that hybrid working had increased this risk, with the economic downturn and cost of living crisis acting as a potential catalyst for fraudulent behaviour.
Impact of fraud
The results show that of the charities that suffered a fraud, more than two thirds resulted in a financial loss.
Most charities said their loss was under £100k (88%). Nearly 10% of respondents said that the loss amounted to more than £100,000.
One fifth said that the fraud had also resulted in a loss of staff, volunteers and trustees and 14% said they had lost other assets like IP and property.
Nearly one in ten charities (9%) said that charitable activities had to be limited or stopped as a result of fraud.
Of the charities who said they had suffered a fraud in the past 12 months, 43% reported the fraudster to the police compared to 63% in last year’s survey.
A similar proportion chose to deal with the fraud through internal disciplinary action (43%) which is a lot higher than 11% in the prior year.
More about the report
Charity finance professionals were the largest group of survey respondents (46%) and 80% of all respondents represented charitable organisations with a total annual income greater than £500,000.
The report concludes:
'This year’s results have shown an increase in reported frauds and financial losses. This is a reminder that fraud is an inherent risk that is not going anywhere. Although this does not necessarily ring as good news, what it does tell us is that charities are doing more to detect and prevent fraud. The survey results certainly show this with the improved levels of investment in countering fraud which is a positive direction of travel for the majority of the sector.'
The report also provides insights on what charities can do to prevent fraud, how it is currently being detected, and the barriers to better fraud prevention.
More resources
Sign up to the Charity Fraud Pledge, developed by CFG and Fraud Advisory Panel.
Are you a small charity wanting to learn more about fraud? Check out our Small Charities and Fraud guide.