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It is now two years since the first case of COVID-19 was reported, and the virus still continues to have a devastating impact around the world. As history shows us all too well, such times of crisis and economic downturn provide fertile ground for fraudsters and criminal opportunists. The current pandemic is no exception. From bogus COVID-19 cures to phishing emails and phony websites, scammers are taking advantage of peoples' fears as the pandemic persists. Unfortunately, the past few months have also seen a stark increase in instances of fraud against charities.
In response to the increasing levels of fraud being reported by charities, BDO and the Fraud Advisory Panel teamed up to conduct a survey to understand the impact of the Covid-19 pandemic on fraud within the charity sector. The survey sought to see how charities are managing the evolving risk of fraud and how the fraud landscape is changing as a result of the pandemic.
Their joint report was published in November 2021, and we have highlighted some of its main findings below. The full report can be found here and is worth a read.
The report states that 65% of respondents either agreed or strongly agreed that the pandemic had increased the risk of fraud to their charity, and 52% of respondents believed that the pandemic made it more difficult to manage the risk of fraud to their charity.
The report points out that this may be due to factors such as increased demand for emergency aid (both by the charity and end users), stretched resources as a result of job losses or furloughed staff making segregation difficult, and fraudsters taking advantage of the disruption caused by the pandemic to facilitate criminal activity.
90% of charities were of the view that fraud will remain at an existing level or increase in the near future. According to the report, this suggests that the sector is aware of the fraud risks that it faces. It could also indicate that fraud schemes, including the increasingly sophisticated cyber-enabled frauds, were already accelerating and dominating the fraud landscape well before the pandemic, and that controls had already been considered and/or implemented.
According to the report, the most common frauds experienced in the 12 months prior to September 2021 were payment diversion fraud, theft of cash or assets, and financial misreporting. There was an equal split between perpetrators being an internal threat (i.e. a member of staff) or an external threat (i.e. a person with no connection to the charity). As the report points out, the pandemic has had a financial impact on many people and could be the driver for honest individuals to look for opportunities out of sheer desperation.
Homeworking has been the biggest change for most workers across the UK. However, the report states that only half of those surveyed thought that homeworking had increased the risks of fraud to their charity.
According to the report, of the charities who experienced a fraud in the past 12 months, it is particularly positive that 82% took action by applying sanctions, seeking redress or reporting to the authorities; and in some instances, a combination of them all. However, this does not guarantee that the losses due to fraud were fully recovered.
The survey results show that for 60% of charities, investment since the pandemic has stayed the same, while 14% of respondents said that they do not invest financially in fraud prevention at all. The report encourages financial investment in fraud prevention as this is the most effective defence against fraud.
The report gives 5 top tips for charities to protect themselves against fraud:
Changes to the way many charities operate as a result of the pandemic have potentially exposed vulnerabilities for fraudsters to exploit, which is why it is more important than ever for charities to get the basics right when it comes to managing the risk of fraud.
Whilst it is understandable that some charities might be reluctant to dedicate their valuable time and resources to a contingency that might never occur, the reality is that the consequences of having to deal with a fraud after the event are substantially more onerous than dealing properly with prevention.
Depending on the complexity of the fraud, recovering misappropriated assets can be difficult and expensive. Whilst the police do have wide powers of investigation when it comes to fraud, it is notoriously difficult to persuade the police to launch criminal investigations into instances of fraud in all but the most serious of cases, and even then their focus is not on recovering the stolen assets. This means that for most fraud victims their only option is to pursue civil claims which can be time consuming and costly, both in terms of legal fees and lost management time.
It is also worth bearing in mind the reputational damage that would come with being a victim of fraud, particularly in circumstances where the charity is accused of having shown insufficient effort of preventing the fraud from occurring.
Please see our previous blog in which we outline some of the critical questions, which all charities, irrespective of size and stature, should be asking themselves to identify areas of risk and detect fraud and how to best respond if the charity has been a victim of fraud.
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.
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