Charity Trustees - Watch Out for Scams

Charity Trustees – Watch Out for Scams

Charity trustees have been reminded of the need to be aware of the possibility that their charity may be used for financial crime. The National Fraud Authority has estimated that annual losses due to financial crime involving charities amount to more than 2 per cent of total income.

As the Charity Commission points out, ‘trustees have a legal duty and responsibility under charity law to protect the funds and other property of their charity so that it can be applied for its intended beneficiaries. They must also comply with the general law (and overseas law where applicable) including in relation to the prevention of fraud, money laundering and terrorist financing’.

The Charity Commission has therefore prepared a list of ‘ten top tips’ for charity trustees to ensure they are aware of the possibility of financial crime and take appropriate steps to reduce the risk of becoming a victim of fraud.

These are as follows.

1. Review your financial controls at appropriate intervals and do so critically, keeping them up to date. Just because you have not been a victim of financial crime, do not assume that it will never happen;
2. Segregate duties – do not allow one or two people to be in charge of all aspects of your charity’s financial controls without carrying out independent checks;
3. Make sure all of the separate parts of the financial records agree with each other. Always ask for and keep receipts. Reconciling bank statements with invoices, receipts, purchase and payment authorisations will often help to identify fraud at an early stage, and may discourage potential fraudsters;
4. Never weaken your financial security for the sake of short-cutting or saving time. For example, do not pre-sign blank cheques, even if a second signature is required;
5. Keep a list or register of valuable fixed assets and key charity property, and periodically verify it;
6. Ensure that electronic or online banking arrangements are secure and are protected with dual-level authorisation;
7. When recruiting staff – especially those who handle the charity’s finances – make appropriate background checks and take up references;
8. If your charity makes grants to beneficiaries or other organisations, carry out appropriate due diligence checks on applicants;
9. Ensure that as trustees you receive and consider regular reporting information about the charity’s finances. If you are a trustee or manager, make sure that you understand the financial summaries and reports that are presented to you, and if you do not, ASK for an explanation that you CAN understand; and
10. If you suspect or become aware of fraud, make sure that you know what to do and who to inform. Make sure this is part of the culture of your charity. Prompt and appropriate action will help to protect your charity and limit any financial damage.

If you have concerns about how a charity at which you hold a position of responsibility is being run, contact us for advice.