Giving or Taking - is your charity losing funds to fraud?

The 2022 Charity Fraud Report showed that the misappropriation of fundraising monies has once again proven to be a significant issue for the sector. Of the charities who participated in our survey, 14% had been a victim of fake beneficiaries, 11% had suffered grant frauds, and 9% had experienced donation fraud.

The work of charities is invaluable to society, particularly during a cost of living crisis, climate emergency and global instability. Their vital work can only be achieved with the help of donations and public trust. However, fraud can significantly impact on a charity’s capability to deliver on their activities.

When it does, especially in the case of fraudulent fundraisers, it can erode the trust of the public and donors, resulting in a decline of funding. The results of all this means that a charity’s mission cannot be fully delivered, putting beneficiaries and service users at a loss.

Additionally, fraud can be corrosive. Losses are not just isolated to the initial fraud - when a fraud is identified, the investigation invariably diverts attention and valuable resources away from where it is needed. It is therefore essential for charities to remain proactive in tackling donation and grant fraud.

What is donation fraud?

Donation fraud happens when individuals falsely claim they are raising funds for a charity but never intend to donate the money and instead keep it for themselves.There have been some successful prosecutions (public and private) in this area in recent years. For example, Annette Wilcox was found guilty of defrauding Macmillan Cancer Support by falsely claiming to be raising funds for the charity but keeping the funds for herself. She pleaded guilty to two counts of fraud by false representation.

This type of fraud means that monies intended for the Charity never reach them, instead remaining with the malignant fundraiser.

 

Protecting against donation fraud

Measures for preventing donation fraud include the following:

• Implement well-managed procedures for controlling the distribution of branded fundraising merchandise.
• Social media sweeps to identify unauthorised events and activities.
• Keep good records so that you can scan activity data for unusual patterns and anomalies.
• Create a formal, centralised log of all reports of potential fraud and suspicious behaviour.
• If a fundraiser seems highly reluctant to accept new procedures for handling money this could be a red flag, particularly if the proposed handling would give the charity more visibility over the funds.
• If you receive reports about collection bags when you are not currently using this fundraising method, you should investigate further.
• Clear means for members of the public to report any suspicions and deter fraudsters.

 

What is grant fraud?

There are six main categories of grant fraud:

1. Application or fictious project fraud – an individual applies to a grant scheme without the genuine intention of delivering the project. For example, the individual applies for funding for a social care programme, and the money is received, but the applicant never initiates the programme.
    
2. Identity fraud – an individual makes a grant application in the name of another person but gives their own bank and contact details and so receives the funding without the impersonated person ever even knowing. Whether or not the funding ever reaches a true beneficiary is doubtful. For example, the impersonated person could be someone with prior links to the Charity, a better track history, or anyone who would otherwise be more likely to receive the funding than the person pretending to be them.
    
3. Fraud by false representation – an individual makes a grant application but the evidence submitted to support the application is fake or forged, potentially with a genuine applicant’s information that has come into the fraudster’s possession. The fake or forged documents will usually paint a more positive picture of the applicant, for instance, by making the balances on bank statements higher, creating artificial supply or service contracts or placing them in a possession that qualifies for funding.
    
4. Overstating Costs – linked to application fraud, this is where fraudsters will exaggerate project costs or inflate budget figures to secure larger grant amounts. This excess funding can then be used for personal expenses or other unapproved uses.
    
5. Misuse or unapproved use of grant funding – once a grant has been awarded, recipients may divert a portion of the funds for personal use, unrelated projects, or activities that are not aligned with the grant's intended purpose. This fraud is made all the easier if the fraudster overstated the costs of the project.
    
6. Double funding – individuals fail to declare they have been awarded grant funding for the same project from multiple grant-making organisations. This allows the fraudsters to deliver the project, avoiding detection, while using the additional funding for personal expenses or unapproved activities.

These types of grant fraud mean that an unsuitable applicant receives funding which then dilutes the funding available for genuine applicants.

 

Protecting against grant fraud

Some measures for preventing grant fraud include the following:

• Have robust due diligence procedures with strict eligibility criteria, conduct appropriate level of background checks on applicants, and verify the accuracy of information provided in grant applications (i.e., quotations, invoices and bank statements).
• Ensure that your grant management system is fit for purpose, captures information accurately and is easily accessible for checks and cross-references through the grant management process.
• Carry out a risk assessment to identify high-risk applications. This allows for targeted scrutiny and validation of projects that pose a greater risk of fraud.
• Implement regular monitoring and auditing procedures to allow donors to better track project progress, ensure compliance with grant requirements, and identify any irregularities or misuse of funds promptly.
• Share best practice with other donors and identify emerging risks.

 

Grant fraud - be diligent and don’t be surprised

Grant fraud comes in many different guises, some of which are set out above. They can range from high-value serial offenders with a large network of individuals attacking your organisation, or lone opportunists who may have started with good intentions. Organised fraudsters and desperate individuals will go to great lengths to conceal their activity and avoid your controls. Particularly in the case of grant fraud, where the individuals have not yet received the grant funding, they will put pressure on you and your team to make a payment even if they are aware that you are challenging it – this is not a sign that they are a genuine recipient. If in doubt, take a step back and don’t feel pressured to respond until you have made your additional checks and consulted as needed. Don’t be surprised by how persistent fraudsters can be.

Ultimately you may never be able to stop determined fraudsters from targeting your Charity; however, you can take steps to protect your funds and future funds that will reduce the threat to a level that allows you to give and receive your funds as intended.

Charity volunteers and supporters give up hours of time for fundraising activities that will address a vast range of societal issues. It is therefore vital that Charities take active measures to manage the risk of donation, grant and beneficiary fraud to combat losses at the source.

Contact Tracey Kenworthy for more information on how to protect your Charity’s benefactors and beneficiaries today.

Charity Fraud Report 2022