How Can Accountants Help Prevent Fraud in Charities?

Introduction

Fraud is a growing concern for charities of all sizes. With millions of pounds lost to fraudulent activity each year, the impact can be devastating — not just financially but also in terms of reputation and public trust. Charities rely on transparency and accountability, so preventing fraud is a top priority for trustees and management alike.

Accountants play a crucial role in safeguarding charities from fraud. Their expertise in financial management, internal controls, and compliance makes them key partners in identifying risks and creating systems that protect charitable funds. This article explains how accountants help prevent fraud, the types of risks charities face, and the best practices that strengthen financial integrity.

Understanding Fraud in Charities

Fraud in the charity sector can take many forms, from deliberate theft to misuse of funds or false claims. Common examples include:

• False invoices or overclaiming expenses

• Misappropriation of donations or cash

• Payroll or procurement fraud

• Unauthorised use of charity assets

• Cyber fraud, such as phishing or online payment scams

Fraud often occurs when financial systems are weak, duties are poorly divided, or trustees and staff lack financial oversight. This is where accountants provide essential protection.

How Accountants Help Prevent Fraud

1. Establishing Strong Internal Controls

An accountant’s first role in preventing fraud is to design and implement effective internal controls. These are systems and procedures that ensure transactions are authorised, recorded, and reviewed correctly.

Good controls include:

• Requiring dual authorisation for large payments

• Separating duties so that no single person handles all aspects of a transaction

• Conducting regular bank reconciliations

• Setting clear expense and procurement approval processes

By creating these checks and balances, accountants make it much harder for fraud to go undetected.

2. Conducting Independent Reviews and Audits

Regular financial reviews, independent examinations, or audits provide an external check on the charity’s finances. Accountants can verify that records are accurate, funds are used for charitable purposes, and there are no signs of irregular activity.

These reviews also reassure trustees and funders that the charity’s finances are being handled responsibly. Any inconsistencies can be identified early, reducing the risk of significant losses.

3. Monitoring Financial Data and Trends

Accountants are skilled at spotting unusual patterns in financial data. They can analyse transactions for inconsistencies, such as unexpected increases in expenses, duplicate payments, or unusual supplier activity.

By using accounting software and regular reporting, accountants can flag potential problems quickly and help trustees investigate before small issues become major fraud cases.

4. Providing Fraud Awareness Training

Many cases of fraud occur simply because staff or trustees are unaware of the warning signs. Accountants can deliver training sessions that teach charity staff how to recognise and report suspicious activity.

Training might cover:

• Identifying false invoices or claims

• Recognising phishing or email scams

• Understanding conflicts of interest

• Following correct approval and documentation procedures

When everyone in a charity understands their responsibilities, the chances of fraud drop dramatically.

5. Ensuring Compliance with Charity Regulations

Charities must comply with regulations from the Charity Commission and HMRC. Accountants ensure that financial reporting, tax returns, and charity accounts are accurate and complete.

Compliance not only prevents fraud but also shows transparency to donors and regulators. Accountants can also help charities implement the Charity Commission’s “Protecting Charities from Fraud” guidance and follow best practices for record keeping.

6. Setting Up Financial Policies and Procedures

A clear set of financial policies is one of the strongest defences against fraud. Accountants can help draft or review these policies, ensuring they reflect current legislation and best practice.

Policies should cover:

• Cash handling

• Procurement and supplier management

• Expense claims and reimbursements

• Use of charity credit cards or bank accounts

• Record keeping and document retention

Having these policies in writing ensures consistency and gives trustees a framework for monitoring financial activity.

7. Strengthening Oversight for Trustees

Trustees are ultimately responsible for safeguarding a charity’s assets. Accountants support them by preparing clear financial reports, explaining key figures, and advising on risks.

Regular meetings between trustees and accountants ensure that financial results are understood and that anomalies are investigated promptly. This partnership strengthens accountability and builds a culture of openness.

8. Advising on Technology and Cybersecurity

With more charities using digital systems and online fundraising platforms, cybercrime has become a major threat. Accountants can recommend secure financial software, encrypted payment systems, and access controls that reduce exposure to cyber fraud.

They can also advise on data protection and backup procedures, ensuring sensitive information such as donor details or bank records is safeguarded.

Example Scenario

Imagine a small community charity that handles donations through both cash collections and online platforms. Without clear procedures, one staff member has access to all financial records, bank accounts, and reporting. An accountant reviews the system and identifies the risks.

They introduce separation of duties, requiring one person to process payments and another to approve them. They also implement accounting software with restricted access and create a monthly financial report for trustees to review.

Within months, transparency improves, and the risk of fraud is significantly reduced. The charity also gains greater confidence from donors, who can see that their money is being properly managed.

Early Warning Signs of Fraud

Accountants can help trustees recognise the red flags that may indicate potential fraud, including:

• Unexplained cash shortages

• Missing invoices or documentation

• Overly complex financial arrangements

• Staff or volunteers reluctant to share financial information

• Sudden changes in lifestyle or behaviour of those handling money

By investigating these signs early, accountants can prevent small issues from escalating into serious losses.

Common Mistakes That Increase Fraud Risk

• Relying on one person to manage all financial processes

• Failing to reconcile bank statements regularly

• Not providing trustees with regular financial reports

• Lack of oversight of fundraising or project spending

• Ignoring the importance of written financial policies

Accountants help close these gaps by creating systems that promote accountability and transparency.

The Benefits of Working with an Accountant

Partnering with an experienced accountant gives charities:

• A clear view of financial performance and risks

• Assurance that funds are being used properly

• Protection against fraud and non-compliance

• Confidence among donors and funders

• Improved financial planning and decision-making

Accountants bring objectivity and professional oversight that can be difficult to achieve internally, particularly in small or volunteer-led organisations.

Conclusion

Fraud prevention is not just about spotting wrongdoing; it is about building strong financial systems that make fraud difficult to commit in the first place. Accountants play a vital role in achieving this by setting up controls, monitoring transactions, and ensuring compliance with charity law.

With regular reviews, transparent reporting, and a culture of accountability, accountants help charities protect their assets and maintain public trust. In a sector built on generosity and goodwill, that protection is invaluable.