Furlough fraud: the offences and sanctions
In this case, the charities are the victims of fraud but this type of conduct, abusing a position of responsibility in relation to financial processing and reporting for personal advantage, is also commonplace within charities. Indeed in 2019, the Annual Fraud Indicator estimated that internal frauds were annually costing the charity sector in the region of £2.5 billion. However, such activity can often be hard to detect and consequently in order to be best protected charities should ensure that:
When it comes to the detection of fraud, it is important to know the warning signs. Red flags might include a sudden change in an employee’s behaviour or missing documents or records. Thorough checks and controls are central to identifying possible anomalies. A checklist alerting employees to look out for certain things can be a useful tool as can ensuring that they are comfortable in reporting suspected fraudulent activity. The latter requires a culture of transparency and clear communications making it known that everyone associated with the charity has a responsibility for being vigilant. A written procedure that deals with how to report suspected fraud confidentially is also important (an internal disclosure is likely to be less damaging than a report made to an external third party).
If a fraud is detected (internal or otherwise), failure to react quickly and properly to investigate can have potentially disastrous consequences, not least the possible destruction of crucial evidence necessary to pursue criminal or civil proceedings. A tailored fraud response plan clearly setting out what steps should be taken when a suspected fraud is first identified (and subsequently) will therefore assist greatly in ensuring a considered but efficient response should the worst occur.
There is a distinction to be drawn between a charity being forced to pursue a claim to recover loss as a consequence of fraudulent activity falling outside of its control, such as the case of Linda Box, and a charity falling victim to internal fraud whereby steps could (and indeed should) have been taken to protect against such risk. Charities are built on foundations of public trust and confidence and every effort should be made to avoid being unnecessarily exposed to fraud and the associated potential financial and reputational damage.
If you are a charity or charitable body and would like to receive a copy of Kingsley Napley’s Fraud Prevention Toolkit please contact us. You may also be interested in reading our earlier blog – “How to guard against and respond to fraud in the charity sector”.
Should you have any questions, please contact a member of our team. We have longstanding experience of helping charities deal with fraud (civil and criminal), financial crime and financial abuse. Our multi-disciplinary litigation team leaves us particularly well placed to assist charitable bodies in civil claims dealing with fraud, whether that be helping to put in place the necessary measures to ensure that the charity is best protected or dealing with the situation once potentially fraudulent activity has been identified.
Katherine Pymont is a Senior Associate at Kingsley Napley. She has a broad spectrum of litigation experience including civil fraud, wills, trusts and inheritance disputes, reputation management, contractual disputes and professional negligence. She regularly advises charities in relation to fraud exposure and legacy disputes.
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