Lessons we can all learn from fraud

I am a big believer in "every day is a school day" and that from failure or loss, there are lessons to be learned. These lessons can be really tough, financially and emotionally, so if we can get wiser from reviewing the failures of others, why wouldn't we?

This week, I was saddened by hearing of the sentencing of the Treasurer of Barnsley and District Animal Rescue Charity (BaDARC) as with good governance, the issue could have been prevented or at least significantly mitigated.

Kevin Proctor, 62, a former trustee of BaDARC, embezzled £230,000 over six years, exploiting his position by creating false invoices, primarily for non-existent veterinary expenses, and siphoning the funds into his personal account.

Founded in 1996, BaDARC is dedicated to rescuing and rehoming stray animals. The annual reports show income of £450,888 in 2017 and £533,042 in FY23, mainly from trading and commercial activities, and so not subject to audit. The charity operated eight retail shops and a kennel block, and its activities were governed by an executive committee of just three trustees, including Proctor. He and the chair of trustees signed off on all financial documents, giving him comprehensive oversight of the charity’s funds.

Suspicion arose in 2020 when the charity's independent examiners, reviewing the accounts, flagged irregularities in invoices and noticed unauthorised transfers to Proctor's bank account. These discrepancies led to a police investigation and ultimately, the uncovering of the long-running fraud. This delayed the submission of the charity’s financial reports, with the FY21 accounts filed 430 days late due to the need to restate previous years’ figures.

At Sheffield Crown Court, Judge Jeremy Richardson condemned Proctor’s actions as “grotesque” and issued a three year prison sentence. A Proceeds of Crime Order has also been issued in an attempt to recover the stolen funds.

Thankfully, the charity has survived this massive breach of trust.

Lessons for mitigating financial skulduggery

1. Strengthen Financial Oversight: Ensure Trustees have appropriate skills, are reviewing policies regularly and aren't too distant from the operations. Responsibilities should be clearly defined among trustees, and no single individual should have unchecked control over finances. Trustees should be rotated in accordance with the organisations Governing document, and actively maintain a risk register.
2. Segregation of duties, authorisation limits and oversight checks: Basic financial policy can go along way to discouraging fraud, and detecting it early. Compliance with these policies should be sample tested at random intervals periodically. If you don't have the skills or resources in house to create an internal audit process, ask your independent examiner, an auditor or a charity consultant for support.
3. A culture of transparency: Have a clear whistle-blowing policy and a culture of open communication, so that everyone feels comfortable with challenging unusual or controlling behaviours.
4. Timely Reporting: Organisations should prioritise timely submission of financial reports to maintain transparency and accountability. It is commonly known in the sector that charities that end up being subject to investigation are often those who leave filing of accounts and Returns to the last minute, or submit them late, as this is a key indicator of poor Governance.

These learnings are applicable to commercial organisations too.

For more tips on Governance, visit our blog.

The reality is that whether we operate a business or a charity, we're at risk of unscrupulous people and good Governance can go a long way to mitigating the risk. When you are busy running the organisation with passion and vigour, it's not always easy to identify shortfalls or spot unusual behaviours.

If you would like an independent review of your internal processes and financial controls, the Hunter Impact Accounting team can provide some perspective and recommendations.