Sharon Martin, Chief Financial Officer at Born Free, shares her story of an attempt to defraud the charity of funds, highlighting the importance of rigorous internal controls.
The importance of internal controls – a real-life example!
CFG developed the Counter Fraud Pledge in 2019, and produced a counter fraud guide to aid charities in fraud prevention. Our article at the time highlighted that £1.9bn of charity money was lost to fraud every single year, syphoned off from organisations to the detriment of the beneficiaries we serve.
Sadly, the threat of fraud on the charity sector has significantly increased in recent years, with last year’s BDO Charity Fraud Report finding that charities have seen an increased risk since the cost-of-living crisis.
Whilst this year’s figures are still to be revealed (please complete the latest survey - details below!), 64% of charities surveyed in the 2023 report expected to see an increase in fraud risk throughout 2024.
Also evidenced in the report is the fact that fraud not only poses a direct financial threat to charities in terms of loss of funds, but can also cause reputational damage for the charity further down the line which could hamper future fundraising efforts, as well as contributing to a loss of staff morale and confidence.
Born Free and Mr X
CFG recently spoke to Sharon Martin, Chief Financial Officer at Born Free, who experienced an attempted fraud this year. The organisation received an email from an individual who provided their full name (for the purposes of this article they will be referred to as ‘Mr X’), and said that he and his wife wanted to mark their 30th wedding anniversary by donating 50 laptops in order to support the charity’s overseas education work.
The team were initially suspicious of Mr X’s email, due to the style of language used and the fact it included no mention of their charity’s name, with Sharon explaining: “we suspected it was just spam”.
Mr X then sent a follow-up email and Sharon explained that: “It can be hard to identify at this stage if an approach is genuine and we took the view that we would explore it further as we did not want to risk alienating a potential new supporter”. The team therefore replied and arranged a follow-up phone call with Mr X.
Sharon noted that in this phone call: “Mr X relayed quite detailed knowledge of our work, details of the laptops and their serial numbers, which he said had been purchased in 2017 and were left over from his business”.
During subsequent interactions, Mr X established a positive relationship with Sharon and her team, who agreed to meet up with Mr X when he was next in London. The team agreed that the laptops could be used to support Born Free’s work in Kenya and Mr X said he would arrange this and fund their transportation.
Alarm bells ringing
Shortly after this, the team received a further email from Mr X claiming that, due to his mother’s funeral he had significant outgoings. He asked the team to provide £750 to cover the shipment costs.
The email set alarm bells ringing: “This really raised our suspicions”, said Sharon. “Our internal controls meant that we would not send him funds, but we agreed to pay the shipment costs directly if an invoice could be sent to us, upon receipt of the machines”.
A couple of days later the team received another email, informing them that the laptops were at Nairobi Airport and demanding the organisation pay $1,072 immediately or additional storage costs would be charged.
This email raised suspicions further with Sharon noting “the shipment company logo appeared copy and pasted” and that the funds were supposed to be paid into a Kenyan bank account “even though the amount was quoted in US dollars and the invoice address was in the UK”.
Additionally, there were no contact details on the invoice itself, although the shipment company did have a website.
To satisfy their internal processes, Born Free needed to make contact to either verify the bank details or make the payment by credit card. The only contact details provided on the website were WhatsApp numbers and, following multiple unsuccessful attempts to contact them via WhatsApp, the team took the view that they would wait for someone to contact them about the laptops.
Sharon said: “We have heard nothing further from the shipping company of Mr X and can now only conclude that this was an attempted fraud”, adding: “While the situation has caused the charity a cost in terms of staff time, following our internal controls meant that no charitable funds were lost”.
A cautionary tale
The team’s experience has reinforced their need to follow their internal procedures and exercise professional scepticism when following-up on potential donations.
Sharon noted that this may put some strain on their time, particularly when funds are being requested urgently, which is often a tactic of fraudsters.
For Sharon and her team, this event also demonstrated the fact that fraudsters do not always “go big” and can often put together elaborate plans to commit fraud to charities, potentially targeting multiple charities with the same or similar scams.
“Mr X had clearly gone to a lot of effort to learn about our charity and set-up the assumed fraud, for a relatively small return. We therefore suspect we were not the only charity targeted,” concluded Sharon.
Share your story
Thank you to Sharon and the team at Born Free for sharing their story of attempted to fraud, which is just one example of thousands of instances affecting charities each year.
If you’d like to share a case study or best practice with the charity finance community, please get in touch. Email Glyn Sheldon, Communications Officer at glyn.sheldon@cfg.org.
For more information and advice on protecting your charity against fraud check out the links below. Please also take a few minutes to complete BDO’s 2024 fraud survey. The results will be launched on 25 November 2024 at BDO's in-person conference on the first day of Charity Fraud Awareness Week. Your responses will be crucial to help safeguard the charity sector.
Resources
Charity Fraud Pledge
Charity Fraud Awareness Week
CFG’s Small Charities Guide to Fraud
Action Fraud
Fraud Advisory Panel
Charity Commission: Protect your charity from fraud and cyber crime
OSCR: How to reduce the risks of fraud in your charity