Two-thirds of charities in the UK say the cost-of-living crisis has increased the risk of fraud, with one in three admitting that they have experienced more instances of fraud in 2023 than last year.

At a time when those in need are increasingly reliant on charities for support, fraudsters are also upping their focus on the third sector, with the prevalence and total value of fraud losses suffered by charities growing in the past 12 months.

According to the Charity Fraud Report produced by the Fraud Advisory Panel and BDO, 43% of charities reported fraud or attempted fraud this year – compared with 36% in 2022 – and of those, 13% had suffered more than 10 frauds.

While the vast majority (92%) said they had experienced financial losses due to fraud, the survey also highlights the broader ramifications; 45% of respondents said they had suffered a loss of morale among staff, volunteers or trustees as a result of fraud. A further 56% said they had experienced non-financial issues as a result of fraud.

Kristina Kopic, ICAEW’s Head of Charity and Voluntary Sector, says: “Fraud can undermine morale within charity teams, not least because around 50% of detected frauds were perpetrated by insiders such as staff, trustees or other volunteers. In addition, valuable staff time is diverted when charity leaders navigate with the reputational and financial consequences of fraud.”

As a result, fraud prevention is a worthwhile investment, and Kopic hopes that charities engage with the wealth of resources available on the Prevent Charity Fraud website. She also welcomes the spotlight that Charity Fraud Awareness Week (27 November to 1 December) shines on charity fraud. 

“ICAEW members who serve charities as trustees, employees or advisers have a key role to play in strengthening controls that help to safeguard charitable funds. I would encourage all charities to use the Charity Commission’s guidance and checklist on internal financial controls to review if their control framework is robust and consider new threats posed by emerging technologies,” Kopic says.

In terms of frauds suffered by charities in the past year, misappropriation of cash or assets remains the most common at 42%, up from 35% last year. Together with a huge spike in expenses/subsistence fraud, more than doubling from 15% to 35%, it suggests a continued focus on the insider threat is needed.

Meanwhile, instances of authorised push payment fraud have increased dramatically from 19% last year to 33% in 2023. Otherwise known as payment diversion fraud, it is when fraudsters pose as someone they are not to elicit payments from an organisation. Similarly, procurement fraud ranks the fourth most common experienced by charities in the past year, affecting 25% compared with 8% a year earlier.

Meanwhile, 64% of charities questioned predicted that the risk of fraud will increase over the next 12 months, with cyber-related fraud including phishing and cyber security the most commonly cited fraud risk over the coming year, undoubtedly linked to charities’ increasing use of online platforms to do their work. 

The report highlights a year-on-year increase in the number of charities who say they have an anti-fraud policy (76%), a cyber security policy (73%) and a risk register that includes fraud in place. However, the report also says policies must be backed up by cyber and fraud response plans that include clear and practical steps responsible persons can walk through to make sure key decisions are made that could impact future prosecutions or recovery actions. 

• A webinar on charity fraud for ICAEW’s Charity Community on 1 December will tackle three common threats and look at the impact of three real-life fraud incidents on charities, alongside practical tips on how to spot red flags early.