 Charities need better protection against fraud
CHARITIES NEED BETTER PROTECTION AGAINST FRAUD
• Only one fifth of counter fraud staff in charities are professionally trained
• Less than a quarter of charities performance manage counter fraud work
• Just under 60% of charities don't have a clear policy to recover fraud losses
21 April 2011: PKF, the leading accountancy and business advisory firm, and the Centre for Counter Fraud Studies at University of Portsmouth, today launch the UK's first research study into the resilience of the UK Charity Sector to fraud. Fraud is a problem which undermines the stability and financial health of organisations across the economy. It is not a victimless crime, but one which piles additional costs on us as consumers. It denies us the quality of public services which we pay for as taxpayers, undermines our job security as employees, reduces the value of companies for us as shareholders, and even denies the beneficiaries of charities the full benefit of the donations which we make.
Fraud can be hugely damaging to any organisation, but especially so to charities. Furthermore, fraud in the charity sector (like the healthcare sector) often has the sort of direct, negative impact on human life that is not found elsewhere.
Across the UK economy as a whole, the Government’s National Fraud Authority estimates that £38.4 billion is lost, with £1.3 billion of the losses occurring in the charity sector. This reflects a change over the last decade or so, where it has become possible to measure the financial cost of fraud in a statistically valid and highly accurate manner. Global research shows average losses of just under 4.6% across all economic sectors with a 40% reduction possible within 12 months.
Each charity answered 29 questions about the effectiveness of their arrangements to counter fraud. These questions covered every aspect of the work :
• Adopting the right strategy
• Accurately identifying the risks and costs
• Creating and maintaining a strong structure
• Taking action to tackle the problem
• Defining success and delivering results.
The Report’s key findings show that, overall, the Charity Sector achieved a mean score of 24.2 and median of 25 out of a possible score of 50. This compares with a mean score among public sector organisations of 34.4 and private sector organisations of 30.6.
Charity Sector organisations performed worst in the following areas:
• Only 18% used loss estimates to make judgements about how much to invest in countering fraud
• Only 19% ensured that their counter fraud staff were professionally trained
• Only 20% monitored the development of anti-fraud cultures
• Only 23% reviewed the effectiveness of counter fraud work
• Only 28% had a clear objective of reducing losses to fraud.
Charity sector organisations performed best in the following areas:
• More than 90% stated that they had effective arrangements in place to report fraud and corruption
• 89% stated that they sought to design fraud and corruption out of processes and systems
• 87% stated that they considered the application of all possible sanctions where fraud is found to be present
• 87% stated that they received reports following investigations on identified policy and systems weaknesses
• 84% stated that they included fraud and corruption risks in risk registers.
Unveiling the results, Jim Gee, Director of Counter Fraud Services at PKF, said: "Fraud is pernicious wherever it takes place. In the charitable sector it is completely unacceptable because it deprives charitable purpose of the funding that they desperately need. We work confidentially with charities to develop their resilience to fraud. Unless rapid improvements are made, I foresee some charities suffering serious reputational and financial damage, especially as they take on more functions as part of the 'Big Society'."
Mark Button, Director of the Centre for Counter Fraud Studies at University of Portsmouth, said: "Knowledge is power. Our fraud resilience research has highlighted the fact that charities need to do more to find out about how fraud affects them so that they can then do more to protect themselves. If you don't know what the problem is how can you apply the right solution? Our Report provides a clear factual basis showing the need for charities to be better protected against fraud."
For a copy of the report, please visit
http://www.pkf.co.uk/pkf/services/forensic/counter_fraud_services/home
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For further information, please contact:
Jane Murray (jane.murray@uk.pkf.com and 020 7065 0135) or
Katie Garrett (katie.garrett@uk.pkf.com and 020 7065 0177)
Notes to Editors:
1. PKF (UK) LLP is a leading firm of accountants and business advisers with more than 1,500 partners and staff operating in 23 offices in the UK mainland firm, incorporating a wholly-owned financial planning company and associated offshore practices. The firm specialises in advising growing and entrepreneurial/owner-managed businesses, AIM and fully listed companies, and also has extensive experience in the public and not-for-profit sectors. Principal services include assurance and advisory; taxation; consultancy; corporate recovery and insolvency; corporate finance and forensic. The firm has particular expertise in advising sectors such as hotels and leisure; mining and resource; public sector; real estate and construction; professional practices; not-for-profit; and medical. The firm’s web site is www.pkf.co.uk.
2. PKF (UK) LLP also offers financial services through its FSA authorised company, PKF Financial Planning Limited. PKF (Isle of Man) LLC is a limited liability company registered in the Isle of Man. PKF (Guernsey) Limited is incorporated in Guernsey.
3. PKF (UK) LLP is a member firm of the PKF International Limited network of legally independent firms. The PKF International Limited network has around 17,600 people operating in 120 countries around the world.
4. Jim Gee is one of the leading counter fraud specialists in the UK and globally. His accomplishments include leading the team which cleaned up London Borough of Lambeth in the mid to late 1990s; advising Right Honourable Frank Field M.P. during his periods as Chair of the House of Commons Social Security Select Committee and Minister for Welfare Reform; and being Director-General of the European Healthcare Fraud and Corruption Network between 2004 and 2006. During his tenure as Chief Executive of the NHS Counter Fraud Service, Gee’s organisation reduced fraud-related losses by up to 60 per cent, delivering financial benefits to the tune of £800 million and achieving a 12:1 return on costs. He has since worked as a senior advisor to the UK Attorney-General on the UK Government’s Fraud Review as well as delivering counter fraud services to public bodies and private companies both in this country and internationally. He is currently advising the Chinese Government on fraud in healthcare and social insurance systems.
5. Dr Mark Button is a Reader at University of Portsmouth and Director of the Centre for Counter Fraud Studies. Mark Button is a Reader in Criminology and Associate Head Curriculum at the Institute of Criminal Justice Studies, University of Portsmouth. He has also recently founded the Centre for Counter Fraud Studies of which he is Director. He is also a former Director of the Security Institute, and a former chair of its Academic Board, and a member of the editorial advisory board of ‘Security Journal’.
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