The study concluded that factors such as placing excessive trust in or responsibility on individuals, and the lack of internal challenge and oversight, contributed to 70% of insider frauds.
The Commission is ‘urging all charities to foster a culture where staff, trustees and volunteers are reminded of the need to challenge any concerning behaviour and not turn a blind eye when internal processes aren’t followed’. Clearly, independent examiners and auditors should also read the findings as there are risk factors that need to be considered.
Additionally, the poor reporting by charities of when fraud occurred (only 57% reported the fraud to the Charity Commission, and only 62% of charities who suffered a fraud reported it to Action Fraud or the police) will cause concern for independent examiners and auditors as to reporting matters of material significance obligations.
The findings in the study highlighted poor governance and oversight within charities as being causes, as the following extract from the report highlights:
‘43% of respondents suggested the prime factor was excessive trust or responsibility placed on one individual
24% due to a lack of challenge or oversight
24% due to either absence of controls or existing controls poorly applied’.
The review also highlights some of the signs - weak and non-existent controls - that were common when fraud occurred. These include:
failure to reconcile transactions and bank statements on a regular basis
poor segregation of duties/unclear responsibility for financial controls
only one signatory for bank transactions
only one individual counting cash collections.
In a separate report on persistent late filing by charities it was highlighted that, out of the 45 charities whose accounts were reviewed by Commission accountants, 16 were charities involved in education and 16 were religious charities. This constitutes 72% of the total number reviewed. The report went on to highlight under Lessons for auditors and independent examiners that:
The trustees of charities that are late in filing may need additional help and support in meeting their legal obligations.
Late filing can be indicative of wider governance problems in a charity.
It is the responsibility of an independent examiner to check that their charity client is eligible for independent examination.