What is cross-border charity fraud?
Cross-border charity fraud includes any fraudulent activities that occur in the context of international or cross-border charitable organisations or initiatives. It can involve the deliberate deception, misappropriation, or misuse of funds or resources intended for charitable purposes across multiple countries.
In an international context, charities face increased operational challenges due to their cross-border activities. This exposes the charity to financial abuse from fraud due to the complexity of operating across international borders. Charities tend to have less control over what happens in foreign locations and face greater risks of losing funds due to currency conversion, conversion of cash into goods and back again, and in some regions, local corruption. Additionally, the absence of a regulated banking system can increase these pitfalls, especially in high-risk jurisdictions, according to the Compliance Toolkit report from the Charity Commission for England and Wales dated October 2017.1
International charities were recognized as “the perfect place for fraud to take place” due to operating in challenging environments and across several geographical locations where oversight and technical capacity might be lower than when operating domestically, according to The Royal Holloway University of London’s report on Fraud in the Charity sector dated August 2020.2
How to prevent cross-border charity fraud risk
NGOs and charities can prevent cross-border fraud by first assessing and understanding the risks they may be exposed to by taking into consideration the challenges that cross-border activities can pose. These charities often operate in war-torn and poverty-stricken countries, which can highly increase fraud-related risks. This risk assessment will allow them to implement adequate policies and procedures to prevent, detect, and ultimately mitigate these risks. Assessing and identifying risks is even more necessary for charities operating internationally when they have complex structures and operations.
When conducting a risk assessment, charities operating across borders have several risk factors to take into account, including but not limited to:
- The complexity of the jurisdictions they are operating in — Are these jurisdictions considered high risks from a corruption, money laundering, tax evasion, or terrorism financing perspective? Financial and corruption indexes such as those produced by Transparency International should be considered. Charities operating in less-regulated, high-risk countries may face higher risks.
- The stability of the geopolitical landscape — Are charities operating in an unstable region? Are they involved in territories caught up in international conflicts?
- The reliability of financial systems across borders — Is the financial system sufficiently regulated in the countries charities operate in?
- The level of risk of the donators — Are they legitimate individuals or companies?
The risk assessment should set the foundation for building effective prevention control to counter fraud and identify the organisations’ risk appetite. As such, charities will be able to have a clear understanding of their inherent and residual risks in the context of cross-border activities, in order to effectively mitigate them. Risk assessments should be done regularly to incorporate any new risks the charitable organisations may face due to changes in jurisdictions, geopolitical landscape, etc.
Charities should also have training and awareness programmes in place that should be revisited regularly to allow existing and new trustees and staff to be up to date. A regular update on the training and awareness programmes will allow charitable organisations to include new exposures that may not have been identified in their risk assessment.
The anti-fraud policies and procedures that follow the risk assessment should be clearly laid out, including a clear purpose and scope, as well as comprehensive risk and internal control systems. The policy should also include a clear internal and external reporting process to mitigate any suspected wrongdoing that can be reported to a Counter Fraud Team. To this end, a whistleblowing programme should be considered to give comfort to staff to report any suspected activities without worrying about any retaliation. Charities can consult the whistleblowing policy recommendations made by the Charity Commission for England and Wales.3 They can also outsource their whistleblower programme to a third party that will help them address any suspicious activities.
How to implement an adequate response plan
In the case of suspected fraudulent activities, charities can either mitigate via an internal or external investigation as part of the fraud response plan. If an external investigation is to be conducted, charities need to bring professional investigators on board to help them investigate the suspected fraud. If evidence of fraudulent activities has been found, charities will have to seek disciplinary actions and/or legal actions against the perpetrators.
Actionable recommendations
From a cross-border fraud prevention perspective, charities can consult the Charity Commission for England and Wales website, which has published a range of best practices templates to protect them against Fraud.4 Among these best practices, charities will find guidance on how to manage risk when working internationally5 and more generally, on how to implement an efficient prevention policy to remediate fraudulent activities. Charities should benchmark their anti-fraud controls against best practices and seek external verification of anti-fraud arrangements. The Charity Commission can provide the right support for that.
In terms of remediation, charities need to have an effective fraud response plan and should not hesitate to rely on third parties to help mitigate potential suspicious activities.
Finally, charities should learn and adapt to be aware of any new fraudulent trends. Post-fraud investigation findings should also be used as a learning lesson to further strengthen the controls.
A four P’s approach to establishing a response plan is attached in Appendix 1.
ACKNOWLEDGEMENT
This helpsheet was kindly prepared by Sandra Saadi and Paul Barnard from Pinkerton.
DISCLAIMER
Published 2023.
© Fraud Advisory Panel and Charity Commission for England and Wales 2023. Fraud Advisory Panel and Charity Commission for England and Wales will not be liable for any reliance you place on the information in this material. You should seek independent advice.
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.
1 Compliance Toolkit: Protecting Charities from Harm, Chapter 3: Fraud and Financial Crime, Charity Commission for England and Wales, October 2017.
2 Fraud in the Charity Sector in England and Wales: Accountability and Stakeholder Oversight, Saffet Aras Uygur from the Royal Holloway University of London, August 2020.
3 https://www.gov.uk/guidance/report-serious-wrongdoing-at-a-charity-as-a-worker-or-volunteer
4 https://www.gov.uk/guidance/protect-your-charity-from-fraud
5 https://www.gov.uk/guidance/charities-how-to-manage-risks-when-working-internationally
