Anti-Fraud Strategy
Posted: Thursday 3 June 2010
A charity’s trustees are ultimately responsible for the prevention and detection of fraud and must ensure that they take necessary steps to manage risks appropriately. However, the relationship which charities have with the general public makes the prevention and detection of fraud particularly important and OSCR has an essential role to play in this too.
As a result, OSCR published its Anti-Fraud Strategy in February 2010. The report sets out the regulator’s strategy in the prevention and targeting of action in relation to fraud, which balances OSCR’s role as a regulatory body with charities’ own responsibilities and is underpinned by the principles of proportionality and accountability. OSCR’s strategy identifies four key aspects:
Prevention
- Charity trustees
A charity’s trustees are collectively responsible for the prevention and detection of fraud in relation to their charity and this responsibility cannot be delegated.
Trustees should be aware of their duties in terms of the Charities and Trustees Investment (Scotland) Act 2005 (the “Act”), which requires trustees to act with reasonable care and diligence as could be expected of a person who is managing the affairs of another person.
There is no requirement on charity trustees to report findings of fraud to OSCR but this is recognised as good practice in providing intelligence which allows OSCR to provide advice for others.
- Scottish Charity Register
The online Scottish Charity Register plays a key role in the prevention of fraud, as all charities registered in Scotland can be checked on the Register to verify whether they are genuine or not.
- Fundraising
Fundraising activities are an area of a charity’s work where there is a significant possibility of fraud. The Charities and Benevolent Fundraising (Scotland) Regulations 2009 prohibit professional fundraising without a formal agreement with the charity, which must comply with prescribed requirements. OSCR also works closely with the Fundraising Standards Board and encourages all charities in Scotland to adopt the Board’s Code of Practice.
Intelligence
- Information sharing
OSCR has a number of formal Memoranda of Understanding for information sharing in place with other charity regulators and public bodies, including for example, the Big Lottery Fund. These Memoranda provide for strategic and operational cooperation and information sharing.
OSCR also has a formal Memorandum of Understanding in place with the Crown Office and Procurator Fiscal Service (“COPFS”), which ensures that COPFS will notify OSCR of any potential criminal activity or misconduct in the third sector.
- Annual Monitoring
OSCR has an obligation in terms of the Act to identify and investigate misconduct by charities and encourage, facilitate and monitor compliance by charities. OSCR operates an Annual Monitoring Programme which requires all charities to submit an Annual Return and accounts and OSCR can undertake more detailed inquiries and risk assessments on an individual basis where there are specific concerns about fraud. OSCR has recently reviewed its annual monitoring requirements and ‘Integrated Reporting’ proposals are due to be implemented in the course of 2011.
Intervention
- Inquiry & Intervention Policy
OSCR investigates all apparent misconduct in accordance with its Inquiry & Intervention Policy. Assessments take account of all available intelligence and will determine the level of intervention by OSCR and whether referrals to the Crown Office or other regulatory bodies are appropriate.
- OSCR’s powers to intervene
The powers which OSCR has to intervene include the disqualification of charity trustees, restricting the transactions of a charity or removing it from the Register. Some of these may be exercised at the regulator’s sole discretion and others on application to the Court of Session. OSCR will only intervene where appropriate, and in some instances, action taken may be limited to making recommendations to ensure that appropriate levels of control are in place.
- Criminal conduct
OSCR and the Crown Office and Procurator Fiscal Service have agreements in place in relation to allegations of criminal conduct in the third sector. The Act sets out a number of offences including failure to comply with the Fundraising Regulations or provision of false information to OSCR. These offences are reported to the District Procurator Fiscal. In other cases, where OSCR has evidence of fraud, for example, the matter is referred directly to the Crown Office.
Improvement
- Changes to legislation
In terms of the Act, OSCR has powers to make recommendations to Ministers and Parliament. This includes changes to legislation and recommendations are normally set out in OSCR’s Annual Report and Accounts. Past suggestions include amendments to the charity test, for example.
OSCR liaises with the Scottish Government Justice Department with a view to exchanging information which assists the development of better governmental policies in relation to criminal and civil justice.
- Research
OSCR undertakes research and evaluates previous cases to identify the need for further guidance, reports and studies and to make the most of opportunities for increased cooperation with other public bodies.
Overall, OSCR’s Anti-Fraud Strategy focuses on prevention through education and intelligence, with intervention where necessary. There is an emphasis on information sharing and working closely with umbrella bodies and other public bodies to enable OSCR to work effectively as a regulator and achieve a continuous cycle of improvement in charities’ compliance and financial management.
Morton Fraser’s Charities Team is led by Adrian Bell and has considerable experience in the formation of, and provision of ongoing advice to charities in Scotland including advising on incorporation, mergers and regulatory matters. The team adopts a cross-departmental approach drawing on both corporate/commercial experience and private client trust experience.
