Research in the International Journal of Business Governance and Ethics has looked at the issue of fraud within charities operating in England and Wales. The study offers several insights into the sector’s susceptibility to fraudulent activities. The work conducted by analyzing data from the annual reports and financial statements of 42 charities with fraud incidents and 42 without, aims to provide a tailored solution to addressing this ongoing problem across the not-for-profit sector.
Charities in England and Wales play a pivotal role in both society and the economy as advocates, fundraisers and supports of a diverse range of worthy causes from medical research and healthcare support to animal welfare, environmental protection. It is important to address and mitigate the risks they face, including fraud and financial misconduct, to ensure donations reach their targets and those worthy causes are supported as fully as they can be by the organisation.
Saffet Aras Uygur and Christopher J. Napier of the School of Business and Management at Royal Holloway University of London in Egham, Surrey, UK, demonstrated that, generally, charities with smaller boards, signifying a closely-knit governance environment, were at greater risk of succumbing to fraud. In contrast, those organizations with larger boards had more effective oversight and so less chance of falling victim to fraud. The team also found that those charities with limited or no grant funding are at greater risk of fraud. This once again demonstrates the need for ongoing monitoring and due diligence by long-term donors, who can act as a deterrent against fraudulent behaviour.
The findings emphasise the critical role that governance plays in safeguarding charitable assets and maintaining public trust. The team points out that public data on charities that have been shut down is not available and so the analysis is limited to active charities where the information is publicly available.
One of the main conclusions from the study is that charities should be encouraged to establish larger boards in order to enhance governance and reduce the risk of fraudulent activities and maintain the integrity of charitable organizations in England and Wales.
Uygur, S.A. and Napier, C.J. (2023) ‘Governance and the prevention of fraud in charities in England and Wales’, Int. J. Business Governance and Ethics, Vol. 17, No. 5, pp.495–524.