Keeping Trust Intact: Understanding and Preventing Charity Fraud
Charities exist to support communities, provide aid, and drive positive change. However, they are not immune to fraud. With billions of pounds flowing through the sector each year, fraudsters—both internal and external—exploit weaknesses in financial controls, causing not just financial loss but also reputational damage. Understanding these risks and taking proactive steps to prevent fraud is critical for maintaining public trust and ensuring that funds reach the intended beneficiaries.
The Scale of the Problem
According to the 2024 BDO Charity Fraud Report, 42% of charities reported experiencing fraud or attempted fraud in the past year. Worryingly, nearly half of these incidents were committed by insiders—staff, trustees, or volunteers. Fraud doesn’t just drain financial resources; it also leads to a decline in morale among staff and volunteers, damages donor confidence, and disrupts essential charitable activities.
The Charity Commission has consistently warned that charities are particularly vulnerable due to their reliance on trust, cash-based fundraising, and often limited financial oversight. Their fraud strategy highlights some of the most common risks, including:
Misappropriation of funds – diverting donations or assets for personal gain.
Payment diversion fraud – tricking charities into sending funds to fraudulent accounts.
Grant fraud – falsifying applications or misusing grant money.
Identity fraud and cybercrime – data breaches and online scams targeting charities.
Why Are Charities at Risk?
Charities often operate on limited budgets and rely heavily on goodwill, volunteers, and small finance teams. This can create an environment where financial controls are not as robust as those found in corporate entities, making fraud harder to detect. A high level of trust within organisations can also lead to an over-reliance on individuals without proper checks and balances, increasing vulnerability to insider fraud.
Additionally, charities are attractive targets for external fraudsters. Cybercriminals use phishing attacks, impersonation scams, and identity fraud to deceive charities into making payments to fraudulent accounts. The rise of digital fundraising and online transactions has further increased the risk of cyber-enabled fraud.
A Proactive Approach to Fraud Prevention
While fraud in the charity sector remains a significant challenge, organisations can take several steps to protect themselves:
Strengthen Internal Controls – Ensure there is proper segregation of duties, independent financial oversight, and regular audits.
Enhance Fraud Awareness – Train staff, volunteers, and trustees on how to identify and respond to fraud risks.
Implement a Fraud Response Plan – Having a structured plan in place ensures swift action is taken if fraud is detected.
Utilise Digital Security Measures – Invest in secure payment systems, multi-factor authentication, and cyber fraud monitoring tools.
Encourage Whistleblowing – Creating a safe environment for reporting suspicious activity can help uncover fraud early.
The Path Forward
Despite the growing complexity of fraud, charities are making progress. More organisations are implementing internal controls, and awareness of fraud risks is increasing. However, continued vigilance is essential. Fraud prevention should be an ongoing effort, ensuring that governance structures remain strong and financial transparency is maintained.
Charities play a vital role in society, and protecting them from fraud ensures they can continue their essential work without financial setbacks or reputational damage. By fostering a culture of accountability and adopting strong fraud prevention measures, charities can safeguard their mission and maintain public confidence in their work.
