Risky business - protecting your organisation from risk and fraud
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PROTECTING YOUR
CHARITY FROM RISK AND
FRAUD
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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.
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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.
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Redirected giving?
Tsunami aid 'threat' to charities
Cancer Research Wales is urging people
to remember that their money is still needed
for other causes.
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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
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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.
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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”
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How can risk be managed?
Accepting
Transferring
Managing or mitigating
Avoiding
4 Ts - tolerate, transfer, treat or terminate
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Types of risk
Governance risks
Operational risks
Financial risks
External risks
Compliance with laws and regulations
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The role of the trustees
Buck stops with trustees
Delegate to managers / team
But “delegation not desertion”
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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.
12. Example – P4 of notes
Christian charity planning to open a new
coffee / bookshop
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Identify risks and controls
Ask key questions – BIG questions
Understand key uncertainties
Brain storm
Consult internally
Consult externally
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Assess the risks
Likelihood of occurrence
Severity of impact
Score and prioritise
15. Examples – P5 of notes
Oxfam
Holidays for deprived children
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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
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Managing risk by embedding
good controls
Appropriate authorisations
Accurate recording
Timely recording and reporting
Bank reconciliations and control accounts
Management information
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Periodically monitor and assess
New risks
New projects
Post mortem on past failures
Communication to team and trustees
Annual review
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Governance and
management risk
Are you an effective trustee body?
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Financial risk
Income flow
Cost control
Good records
Reserves policy / actual reserves
Taxes
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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
24. “WE ARE ALL NICE PEOPLE
AND WE TRUST EACH
OTHER”
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25. 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
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26. 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.
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27. FRAUD IN CHARITIES
Charities lose on average 2.4% of their
income to fraud
£1.3 billion loss to the sector as a whole
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28. IS CHARITY FRAUD RIFE???
NO
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29. IS CHARITY FRAUD AN
ISSUE??
YES
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30. 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
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31. 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
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32. TYPES OF FRAUD
Income related
Expenditure fraud
Property fraud
Gift aid fraud
Etc.
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33. THE FRAUD TRIANGLE
Motive / incentive / pressure
Rationalisation
Opportunity
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34. 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
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35. 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
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36. 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
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37. LESSONS
Auditors should not be relied on to find
fraud
Whistle blowing is vital
Internal audit and controls are important
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39. FRAUD INDICATORS
People risks
Culture
Behaviour
Organisational structure
Others
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40. 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
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41. FRAUD PREVENTION
Get the culture right / set the tone
Communicate to all
Establish robust controls, policies and
processes
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42. FRAUD DETECTION
All to take responsibility
Risk assessments
Staff training, awareness and reporting
Watch for warning signs
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43. FRAUD RESPONSE
Need to act immediately
Have a good response plan
Process
Roles
Reporting
Disciplinary / other action
Lessons
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44. 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
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