Charity cheats

Ana Paula Nacif reports on how charities can be protected against losing money to employee fraud

Fundraising is one the hardest jobs there is. And although employee dishonesty can cost private companies some hard-earned cash, for charities the implications go beyond a dent in the balance sheet. It can damage their reputation, push away supporters and seriously impair their ability to fulfil their raison d’être.

Yet, according to a report by the Fraud Advisory Panel, three in five charities do not have any anti-fraud measures in place, despite the fact that most organisations believe they are more vulnerable to fraud than other sectors. Moreover, 7% of charities claim to have experienced fraud in the past 12 months.

The message for brokers working in this sector is clear: they can add value for their clients by helping them put robust risk management procedures in place and ensuring that they have appropriate insurance cover. Charities tend to be careful with their money, but insurance costs are minimal compared with losses that could arise from employee fraud. Earlier this year, for example, an employee of Diabetes UK pleaded guilty to transferring money by deception. She had diverted £250,000 into private bank accounts over six months.

Road to recovery
Fraud involving employees is a significant threat to charities. “In the current financial climate, the propensity for people to turn to theft from their employers is perhaps higher,” says Deepak Soni, Hiscox’s Product Head, Medical Malpractice and Charities. “This is an area of cover that needs to be highlighted more to clients given the exposure that they could face.”

Brokers can share knowledge and experience across their client book. “For example, having dual controls in place for any financial transaction provides a robust system of control that can reduce the risk of fraud,” explains Deepak.

Financial losses can be significant and damage to reputation could deal a serious blow to the charity’s future fundraising efforts. “Fraud has wider implications,” Deepak says. “That’s why Hiscox has crisis containment cover within its charities trustee policy. As well as cover of up to £100,000 for employee dishonesty, expert advice will help clients get back on their feet following negative publicity.”

It is crucial that charities protect their brand and ensure that the money is going to the right place. “Would you donate if you knew your money was not going to the cause? The public has an interest in charities and losing money through the back door doesn’t help,” says Deepak. “No organisation is fraudproof, but having the right insurance policy could mean a speedier recovery, both financially and in terms of reassuring supporters that they are helping a professional organisation.”