Half of all detected charity fraud continues to be committed by internal perpetrators, a new report from BDO and the Fraud Advisory Panel has revealed.

The survey of more than 135 leaders from UK charities, published today as part of Charity Fraud Awareness Week, found that 42% of charities were victims of fraud over the past 12 months. 

Despite improvements in fraud awareness among charities, offences committed by staff, volunteers and trustees remain the most prevalent, with 50% of detected frauds perpetrated by individuals within the organisation. 

Most common frauds

The most common type of charity fraud was the misappropriation of cash or assets by staff and volunteers (40%). Meanwhile, one-third of charities had been a victim of payment diversion fraud, also known as authorised push payment (APP) fraud. This is, for example, when a fraudster impersonates the CEO and orders an urgent payment or pretends to be a supplier and creates or amends invoices, with the objective of diverting funds to bank accounts under their control.

Last year, at least £459m was lost by organisations to APP scams. However, there are routes for charities to recover some of these losses. The rules around financial recovery were updated on 7 October 2024 and now include a mandatory framework for compensation up to £85,000, which replaces the previous voluntary system.

Staff expenses fraud also remains high with more than a quarter (29%) of charities experiencing it over the past 12 months.

The financial cost of fraud

The survey indicates that fraud prevention measures are working by detecting and acting on fraud early; however, 85% of charities still reported suffering a financial loss as a result of the fraud committed. More than two-thirds (69%) of victims of fraud experienced losses under £100,000, up from 65% last year. However, 10% suffered a financial loss up to £1m, and 5% reported total losses exceeding £1m.

Tracey Kenworthy, Counter Fraud Director at BDO, says it is encouraging that measures to prevent and detect fraud were being implemented by charities, but more needed to be done to tackle the persistent problem of insider fraud.

“In the past, charities have been overly reliant on trust. Although our survey suggests that this is changing, the persistent problem of internal perpetrators highlights the importance of having robust internal controls and fostering an anti-fraud culture of openness and transparency.”

Regulation to provide helpful framework

“While charities have a more optimistic outlook for the coming 12 months,” says Kenworthy, “it’s important that they continue to tackle the fraud risks they are facing. The introduction of the Economic Crime and Corporate Transparency Act will provide a framework that some charities can leverage to strengthen their fraud prevention efforts.”

Sir David Green, Chair of the Fraud Advisory Panel, adds: “This year’s Charity Fraud Report highlights the profound and long-lasting implications fraud has on charities of all sizes. While there are positive and meaningful steps taking place to detect and prevent fraud, charities should not take their finger off the pulse when assessing fraud.”

The Economic Crime and Corporate Transparency Act failure to prevent fraud guidance was published by the Home Office on 6 November 2024. The legislation, which will impact some charities, aims to enhance transparency and combat economic crime. 

Failure to prevent fraud is applicable if an organisation meets at least two of the three criteria:

• More than 250 employees;
• More than £36m turnover;
• More than £18m in assets.

Organisations should ensure they take steps to review their fraud prevention processes, ensuring they have implemented any changes outlined in the Home Office guidance.

Now in its ninth year, Charity Fraud Awareness Week is an international campaign, run by a partnership of charities, NGOs, industry experts, regulators, representatives, umbrella bodies and other not-for-profit stakeholders across the world. Its aim is to share best practices and protect charities and NGOs from fraud.

Free events

A series of free events run in conjunction with industry experts and charities will take place during the week. To find out more and to register go to the Preventing Charity Fraud website. Throughout the week, the Fraud Advisory Panel will be releasing resources including helpsheets, articles and videos from supporters and charities to help keep organisations safe from fraud.

Fraud pledge

Charities are also encouraged to sign up to the charity fraud pledge, launched last year, which sets out six basic steps that all organisations – regardless of size – should be able to take to show that they are working actively to prevent fraud. 

Matthew Field, Head of the Fraud Advisory Panel, says: “Supporting charities with their counter-fraud efforts will remain a priority for the Fraud Advisory Panel and we welcome the support of all involved this year with a view to continue growing Charity Fraud Awareness Week in future years.”

David Holdsworth, Chief Executive of the Charity Commission, says: “Fraudsters are becoming more sophisticated as technology advances yet they are still often opportunistic. It’s important for all charities to identify and manage possible risks, helping to protect themselves from fraud.”

• For more information about Charity Fraud Awareness Week and how to get involved, visit preventcharityfraud.org.uk and join the conversation at #StopCharityFraud

ICAEW’s charity resources

• CPD course for charity trustees
• Introduction to the Charities SORP (FRS 102)
• Charity Accounting, Reporting and Governance Update