Charity Fraud

There appears to be a greater risk of charity fraud than corporate fraud. The reason for this is potentially because the culture within a charity is profoundly different to that within a company. A charity is a good cause, it does not have the same drive to make profits as a business. Yes, it does want to raise money, but the control over doing so very often lacks commercial awareness and leads to charity frauds.

Charity fraud can therefore arise because the organisation concentrates on raising money, and ignores the staff member who sees an easy way to steal money from the unsuspecting good cause. It can also arise because the fraudster can see the inherent inability for decent people to say “no” when asked to contribute to a good cause.

The latter form of charity fraud is the most prevalent, whereby an individual or group of individuals set out to defraud the donors of funds to the charity. There have been many serious fraud cases in recent years where somebody, often a man and his wife or other family members, set up a charity initially to serve a good purpose. Then they see how easy the money is raised and even easier for them to spend unchecked. As their lifestyle increases in luxury, so do their “business expenses” taken from the charity funds. I remember dealing with one such case where a couple travelled to Florida regularly under the pretence of arranging “once in a lifetime” holidays for terminally ill children. In reality they were spending their time on holiday and were even arranging the purchase of a holiday home for themselves – all using charity funds.

Charity frauds or, more appropriately charity scams, are often perpetrated by support publishers. These are publishing businesses set up as get rich quick schemes by unscrupulous fraudsters who do not mind using the names of charities or other good causes in vain to get people to part with their money. A telesales operation, support publishing companies are often run from a home office, or even in a couple of cases from the con man’s bedroom. The opening call to unsuspecting small businesses and sole traders might take the following line:

“Hello, we wondered if you would be interested in advertising in the Good Cause Charity’s Child Safety Booklet? This is a sound commercial platform for your business as we will be distributing 20,000 copies in your post code area and you will be helping in the worthy cause of Child Safety being run by the Good Cause Charity. We can do you a half page advert for only £250 today…”

Sometimes the caller will say “Thank you for advertising last year in…(some good cause publication)…this year we are running…(a different campaign)…” The unsuspecting customer cannot remember advertising last year but decides that if another member of staff did it last year it must be fine to repeat the exercise now. It is very difficult for somebody to decline such a request.

Sometimes there is a publication and sometimes money does go to a charity. However, under the Charities Act any publication must clearly say which charities are supported and how much of the funds raised goes to each charity. In practice these support publishing scams only circulate the publication to each advertiser (to satisfy the people funding the adverts that the publication is real) and little if any of the funds raised goes to the good cause! The money pays the staff and overheads and often keeps the company directors in a very luxurious lifestyle.

Charity frauds such as these are prevalent in the UK. No sooner do the authorities close one down but another one opens. The business is easy to run and telesales operatives work on one for a while, realise that it is an easy way to make money, then set up on their own. There is a pool of operatives based primarily in the North West of England that support these charity fraud scams, moving from one to the other as they close down and start up again.

The lesson to be learned is to be a little more cautious when making a donation to a charity. Make a point in selecting only those charities you are happy to give to and try to politely explain this to hopeful approaches. At least state categorically that no donations will be agreed to unless detailed paperwork is sent through the post. Then at least you can check to see if the charity is bone fide and that it does endorse the booklet (or diary or wall planner etc) that is being published.

Investigating a charity fraud is no different than investigating any other form of fraud. One of the key characteristics that I have found it a good idea to look out for charity principals taking cash from the revenue without paying tax. This is often facilitated by adding fictitious employees to their staff lists. This scam is aided by the fact that many such organisations are set up to collect donations or advertising money using telesales operatives, often employed on a self employed basis. It is easy to add a name to the list of operatives and take the cash for yourself!

Tax evasion as described above is more common than people realise. There is a vast “black economy” operating behind the scenes within the UK, USA and all other countries where you least expect it. Read more about this within my Tax Fraud articles.

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About Mark Jenner

Mark Jenner is an experienced forensic accountant specialising in fraud and white collar criminal matters. He provides independent financial investigation and expert accounting witness services to police forces, fraud regulators and criminal defence lawyers, also providing assistance and solutions to organisations embroiled in financial disputes.

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