Fraud Advisory Services

There appears to be a greater risk of charities fraud thancorporate 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 in the same way 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 unscupulous 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 opperation, 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 advertsing 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 advertsing last year but dedides that if another member of staff did it last year it must be fine to repeat the excercise 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 advertser (to satisfy them 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 opperatives work on one for a while and then start up on their own. There is a pool of opperatives based primarily in the North West of England that support these charities 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 hopefull approaches. At least state catagorically 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.

A fraud can be uncovered in a number of different ways. A good example is by a whistleblower who who might inform his managers that a colleague has been fraudulently stealing from the company. Such a corporate fraud will need to be investigated in order to prevent further losses, find out how it happened in the first place and to try to recover where possible any losses that have occurred.

A specialist fraud investigator is needed for such a task and it is very common for the victim company to enlist the assistance of a qualified forensic accountant. Such a person will be accredited to investigate a fraud and may be a Chartered Accountant or a Certified Fraud Examiner with possibly other qualifications together with years of experience dealing with such cases.

Every fraud is different. There are different characteristics to be found between bank fraud, supplier fraud and mortgage fraud. Even within these categories there are many possibilities because the fraudster is very resourceful in seeking out new and different weaknesses in a business.

The investigator will approach the corporate fraud by first determining what the organisation wants to achieve. This might be only to get the money back or it might want to make an example of the fraudster as a lesson to others. If it only wants to get its money back it may not want law enforcement involved as this might disrupt its business or cause its reputation to be damaged. For example a bank might not want the general public to know that it had allowed a fraudster to work in its midst.

The forensic accountant or certified fraud examiner will want to agree the desired outcome of the matter with management and develop an investigation strategy based upon the organisation’s own fraud response plan. It may be possible to interview the whistleblower early on to get a quick “heads up” into what was going wrong before beginning a detailed analysis of the accounting records, interviewing staff and making other enquiries often outside the organisation.

For the actual mechanics of the investigation the forensic accountant will most likely want to follow the trail of the stolen money. “Follow the money” will be the primary goal as this will provide not only a chance of getting the money back, but also evidence of why and how the fraud took place.