Risky business - protecting your organisation from risk and fraud

Watts Gregory in association with
WCVA
PROTECTING YOUR
CHARITY FROM RISK AND
FRAUD

WCVA
Charity in insurance shock
A charity that works with children at risk says it may
be forced to close because it cannot afford
rocketing insurance costs. The Atlow Mill Centre
near Hognaston, Derbyshire, faces an increase of
almost £15,000 in its insurance premium.

WCVA
Staff shortages
Homeless centre needs volunteers
A shortage of volunteers has left a Lincoln-based
charity for the homeless in crisis. The Nomad
Trust's night shelter, day centre and fundraising
shop are all short of staff.

WCVA
Redirected giving?
Tsunami aid 'threat' to charities
Cancer Research Wales is urging people
to remember that their money is still needed
for other causes.

WCVA
What is risk?
 The uncertainty surrounding events and their outcomes
that may have a significant effect, either enhancing or
inhibiting:
 Operational performance
 Achievement of aims and objectives
 Meeting expectations of stakeholders
The possibility that something will happen to stop you doing
what you plan to do

WCVA
Developing views of risk
 Traditionally fraud, fire, accidents etc – the
answer being insure and have a disaster plan.
 Now much wider – above + financial,
reputational, legal and many other risks.
Risk management is now an ongoing, pro active
process.

WCVA
What sort of risks need to be
considered?
 Big issue risks
 Reputational risk
 Failure to deliver on major strategic aims
 Losing major funder
 Going “bust”

WCVA
How can risk be managed?
 Accepting
 Transferring
 Managing or mitigating
 Avoiding
 4 Ts - tolerate, transfer, treat or terminate

WCVA
Types of risk
 Governance risks
 Operational risks
 Financial risks
 External risks
 Compliance with laws and regulations

WCVA
The role of the trustees
 Buck stops with trustees
 Delegate to managers / team
 But “delegation not desertion”

WCVA
Establish a risk policy
Risk is an inherent feature of all activity but there
are degrees of risk and differing organisations
will have differing capacities to absorb risk.

Example – P4 of notes
Christian charity planning to open a new
coffee / bookshop
WCVA

WCVA
Identify risks and controls
 Ask key questions – BIG questions
 Understand key uncertainties
 Brain storm
 Consult internally
 Consult externally

WCVA
Assess the risks
 Likelihood of occurrence
 Severity of impact
Score and prioritise

Examples – P5 of notes
 Oxfam
 Holidays for deprived children
WCVA

WCVA
Evaluate what action needs to
be taken
 Consider the risk – “Gross risk”
 Review existing controls
 Establish the remaining risk – “Net risk”
 Accept, transfer, manage, avoid

Example risk checklist
Appendix 1
WCVA

WCVA
Managing risk by embedding
good controls
 Appropriate authorisations
 Accurate recording
 Timely recording and reporting
 Bank reconciliations and control accounts
 Management information

WCVA
Periodically monitor and assess
 New risks
 New projects
 Post mortem on past failures
 Communication to team and trustees
 Annual review

WCVA
Governance and
management risk
Are you an effective trustee body?

WCVA
Financial risk
 Income flow
 Cost control
 Good records
 Reserves policy / actual reserves
 Taxes

WCVA
CONCLUDING COMMENTS
 Don’t major on minors – hit the big issues
 Risk is not just about financial matters – think of
the wider issues
 Be a well run organisation – this automatically
reduces risk

PROTECTING YOUR
CHARITY FROM
FRAUD
WCVA

“WE ARE ALL NICE PEOPLE
AND WE TRUST EACH
OTHER”
WCVA

BUT WHAT ABOUT ...
 The FD of Family Care who stole £76K
 The FD of RFEA who faked invoices to
siphon off £43K to fund his gambling
 The accountant at ECML who stole £562K
over 5 years by forging signatures and
creating fictitious invoices
 The treasurer at an Arts Festival who
pocketed £25K of entry fees
WCVA

INCIDENCE OF FRAUD
 314 cases of serious fraud with costs of
over £100K went before the UK courts in
2010 with a total cost of £1.3bill.
 £1.1bill of fraud went before the courts in
the first 6 months of 2011.
 It is estimated that fraud costs the UK
economy £73bill annually.
WCVA

FRAUD IN CHARITIES
 Charities lose on average 2.4% of their
income to fraud
 £1.3 billion loss to the sector as a whole
WCVA

IS CHARITY FRAUD RIFE???
NO
WCVA

IS CHARITY FRAUD AN
ISSUE??
YES
WCVA

RECENT EXAMPLE - AWEMA
 Too powerful a Chief Exec.
 Ability to override controls
 Fix own salary
 Fix daughter’s salary and appoint her to
roles without due process
 Dubious expense payments
 Conflicts of interest not managed
WCVA

EXAMPLE – LONDON
PHILHARMONIC
 £2.3 mill fraud by FD
 Forging signatures on cheques and credit cards
 False expenses
 Took 3 years to find
 Position enabled override of procedures
 Paid self and falsified records to cover it up
 Treasurer of local church / ex wife a Tory
councillor
WCVA

TYPES OF FRAUD
 Income related
 Expenditure fraud
 Property fraud
 Gift aid fraud
 Etc.
WCVA

THE FRAUD TRIANGLE
 Motive / incentive / pressure
 Rationalisation
 Opportunity
WCVA

BREAKING THE FRAUD
TRIANGLE
 Focus on “opportunity”
 Implement controls to restrict opportunity
 Others are tough to break but
 Don’t contribute to the pressures
 Recruit good people
 Be observant / watch for indicators
WCVA

HOW IS FRAUD DISCOVERED?
Mercia
 35% by accident, tip off or customer complaint
 45% by formal internal procedures – review,
staff whistle blowing, internal audit, suspicious
supervisor, other internal controls
 20% other – regulatory bodies, external audit,
external control
WCVA

HOW IS FRAUD DISCOVERED?
Deloitte
 48% by tip off, whistle blowing etc.
 19% by accident
 19% internal audit
 15% internal controls
 11% external audit
 3% other
WCVA

LESSONS
 Auditors should not be relied on to find
fraud
 Whistle blowing is vital
 Internal audit and controls are important
WCVA

FRAUD INDICATORS
WCVA

FRAUD INDICATORS
 People risks
 Culture
 Behaviour
 Organisational structure
 Others
WCVA

TYPICAL FRAUDSTER
 Male – 85%
 Aged 36-45
 Defraud own employer
 Work in a finance related role
 Part of senior management
 Been in company for more than 10 years
WCVA

FRAUD PREVENTION
 Get the culture right / set the tone
 Communicate to all
 Establish robust controls, policies and
processes
WCVA

FRAUD DETECTION
 All to take responsibility
 Risk assessments
 Staff training, awareness and reporting
 Watch for warning signs
WCVA

FRAUD RESPONSE
 Need to act immediately
 Have a good response plan
 Process
 Roles
 Reporting
 Disciplinary / other action
 Lessons
WCVA

TO SUM UP
 Don’t ignore the dangers – “we are all nice
people and we trust each other”
 Get culture right and support it with good
processes and systems
 Be alert to warning signs
WCVA

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