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Fraud and Foundations

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Like all organisations, foundations are vulnerable to fraud and cybercrime. While some of these risks apply to all organisations, others come with foundations’ distinct way of working by distributing funds and holding significant assets.

ACF has published new guidance on tackling grant fraud. Grant fraud, the dishonest or deliberate use of grant funds, is understandably a major fraud risk for foundations. For many foundations, grant-making is the primary way they pursue their charitable missions, and so they seek to ensure this funding – as well as their time and energy – reaches the right people and causes.

New guidance

Tackling Grant Fraud builds on an earlier ACF publication that set out the principles of good practice in deterring and detecting fraud, many of which still stand true today. Robust due diligence, sound financial checks and sharing information (in ways that are legally compliant!) are all part of a strong approach to countering fraud. Although grant fraud is only one piece of the fraud puzzle, there are principles that apply across the board.

It is important that both trustees and staff understand their roles and responsibilities in relation to tackling fraud. While staff are likely to implement much of the guidance, for example in assessing applicants and carrying out checks, trustees are ultimately responsible for the foundation and its assets, and are crucial in establishing a counter-fraud culture across the organisation.

The new guidance echoes these principles bringing in new and evolving considerations. For example, developments in technology have altered the nature of foundation operations – and the risk. Between emails, web portals and online banking, it is possible for most, if not all, of a foundation’s interactions to take place via the internet. Cyber-enabled and cyber-dependent fraud risks are now pervasive, and steps should be taken to ensure the principles of fraud prevention apply online too. This is ever more important as we work

The legal and regulatory landscape is constantly evolving. Some rules directly impact on foundation’s operations, for example recently-introduced data protection regulations set higher standards on sharing information. Others have an indirect impact, like global efforts to combat money laundering and terrorist financing which have sometimes affected foundation data collection and reporting.

Fortunately, there has also been a wealth of resources provided to help organisations deal with these complex risks and issues. Support from regulators like OSCR, the private sector and charity infrastructure bodies offers foundations a range of tips and tools in the fight against fraud, and we signpost these throughout.

Covid-19

While the principles of fraud prevention remain consistent, changes to the way foundations are operating mean that foundations should think how those principles apply in today’s circumstances. This includes both internal changes like remote working arrangements, as well as changes in how grants are being processed and monitored. Many foundations have responded with agility and flexibility to meet surging beneficiary need and uncertainty, finding a balance between existing processes with unprecedented circumstances.

Risks and relationships

While strong controls can prevent against fraud, they can also feel at odds with the foundation’s efforts to build trusting relationships with its partners and grantees. How can we as funders say we trust our grantees, and also ask for extensive and burdensome checks and documentation?

Rather than being at odds, these relationships can be the key to countering fraud. Working with partners and grantees that are aligned to the need to use resources effectively is a solid foundation on which to build a relationship. What’s more, a foundation can develop a counter-fraud approach that works in its own context, taking into account its ways of working and its relationships with grantees and applicants. This includes being led by mission and values in developing processes; see ACF’s forthcoming Stronger Foundations report on funding practices for more on this topic.

Risk is also a crucial consideration. Foundations are distinct in their ability to take risks with their funding, addressing issues and communities that public and private funders can’t or won’t. In many cases, it is the ‘riskiest’ work that is most urgent and important; for example, in supporting social movements, the disenfranchised, or those without access to institutional support. Again, it is up to the individual foundation to think through how its counter-fraud approach links to its risk appetite, and what the implications might be. This includes balancing the risks of fraud with the risks of inaction, of diverting applicant resources, and of denting the foundation’s legitimacy or reputation.

What next?

At ACF we want to hear more from foundations on the issue of fraud to understand current practice and what further support is needed. We’d like to gather case studies as to how foundations have experienced and addressed fraud to share learning and tips, and to help us ensure that the current provisions available for charities take into account any issues unique to foundations. Please email policy@acf.org.uk to discuss further.