Value of fraud hitting UK charities falls amid improved reporting

BDO has found improvement in awareness, and the reporting of fraud within the charity sector, leading to losses of up to and over £1 million decreasing. The average volume of fraud per charity has also decreased, suggesting that charitable organisations are feeling optimistic on their future prospects of tackling fraud.

The UK charity sector’s income shrank for the first time in eight years following the Covid-19 outbreak, according to research from NCVO. The group’s post-lockdown charity sector overview showed a 14% drop in money from the general public and a 15% fall in investment income led to an overall decrease of 3% in 2020-21 – with smaller charities hit hardest. As the third-sector looks to bounce back from that, potentially becoming the victim of fraud is a worst-case scenario few charities can afford.

According to the latest ‘Charity Fraud Report’ from BDO, there has fortunately been some progress when it comes to third-sector entities avoiding such a fate. A 42% portion of UK charities reported fraud or attempted fraud this year, compared to 43% in 2023. At the same time, the average number of frauds experienced in the past year per each of those firms fell, from 5-8% in 2023 to 4-7% in 2024.

While that may seem like a relatively meagre improvement, the study also found that charities were better at dealing with the cases that transpired. While in 2023, instances of fraud were only reported 37% of the time, that rose to 52% in the year since. And the number of charities taking internal disciplinary action against fraud rose from 35% to 45% in 2024.

This seems to have impacted the kinds of risks fraudsters are willing to take, lessening the blow for charities when they did occur. While the total fraud losses over the last 12 months saw 69% experience losses under £100,000 – up from 65% last year – the number suffering financial loss of up to £1 million sank to 10%, while just 5% reported total losses exceeding £1 million. 

Speaking on the research, Matthew Field, head of the UK’s Fraud Advisory Panel, said, “The 2024 Charity Fraud Report demonstrates how previous campaigns have helped charities to address the fraud risk. The ongoing commitment from BDO and representatives from across the public and private sector demonstrates the success that can be achieved when all work together. We extend our thanks to all who contributed to the survey, conference and campaign, and to BDO for their support with tackling charity fraud.” 

There is still plenty of work to do, of course. According to the report, the most common type of charity fraud was the misappropriation of cash or assets by staff and volunteers – at 40% of instances. This was followed by payment diversion fraud, also known as authorised push payment (APP) fraud, experienced by a third of charities, at 33%. This type of fraud can happen 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. Staff expenses fraud also remains high with 29% of charities experiencing it over the last 12 months. 

But there are also impacts which stretch beyond the field of finances. A 21% portion of charities suffering from fraud said it resulted in the loss of staff or trustee morale, and 12% said it had impacted their reputation. And 78% said they had experienced other non-financial issues – which could come back to bite them as they strive to connect with the public.

Tracey Kenworthy, counter fraud director at BDO, added, “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. While charities have a more optimistic outlook for the coming 12 months, 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.”

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 £36 million turnover; or more than £18 million in assets. According to BDO, organisations should ensure they take steps to review their fraud prevention processes, ensuring they have implemented any changes outlined in the Home Office guidance.