Charity Trustees Given Financial Crime Awareness Warning

Posted: 24th May 2011

Charity Trustees have been reminded of the need to be aware of the possibility that their charity may be used for financial crime, with the National Fraud Authority estimating that annual losses to charities due to financial crime amount to more than 2 per cent of total income.
As the Charity Commission points out, ‘trustees have a legal duty and responsibility under charity law to protect the funds and other property of their charity so that it can be applied for its intended beneficiaries. They must also comply with the general law (and overseas law where applicable) including in relation to the prevention of fraud, money laundering and terrorist financing.’
The Charity Commission has therefore prepared a list of ‘ten top tips’ for charity trustees to ensure they are aware of the possibility and take appropriate steps to reduce the risk of financial crime.
These are as follows.
  1. Review your financial controls at appropriate intervals and do so critically, keeping them up to date. Just because you have not been a victim of fraud, do not assume that it will never happen;
  2. Segregate duties – do not allow one or two people to be in charge of all aspects of your charity’s financial controls without any checks being made;
  3. Make sure all of the separate parts of the financial records agree with each other. Always ask for and keep receipts. Reconciling bank statements with invoices, receipts, purchase and payment authorisations will often help to identify fraud at an early stage, and may discourage potential fraudsters;
  4. Never weaken your financial security for the sake of short cutting or time saving. For example, do not pre-sign blank cheques, even if a second signature is required. Doing so reduces your cheque security by 50 per cent –or, to put it another way, doubles the risk;
  5. Keep lists or registers of valuable fixed assets and key charity property, and periodically inspect them;
  6. Ensure that electronic or online banking arrangements are secure and are protected with dual-level authorisation;
  7. When recruiting staff – especially those who handle the charity’s finances – make appropriate background checks and take up references;
  8. If your charity makes grants to beneficiaries or other organisations, carry out appropriate due diligence checks on applicants. Guidance on this can be found at ‘know your beneficiaries’;
  9. Ensure that as trustees you receive and consider regular reporting information about the charity’s finances. If you are a trustee or manager, make sure that you understand the financial summaries and reports that are presented to you, and if you do not, ASK for an explanation that you CAN understand; and
  10. If you suspect or become aware of fraud, make sure that you know what to do and who to inform. Make sure it is part of the culture of your charity. Prompt and appropriate action will help to protect your charity and limit any financial damage.
If you have concerns about how a charity of which you are the trustee is being run, contact us for advice.