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Increasing risks of financial crime impacting Australian charities and Not for Profits
Summarising the risks
The growth in number of Australian charities and Not for Profit organisations, the demand for their services domestically and abroad, together with the increasing complexity of financial crime activity, all contribute to an increasingly high-risk environment.
Specifically, increasing risks that the sector must be alert to include:
- Misappropriation of funds through false invoicing, over charging, credit cards fraud and payments for non-authorised purposes. Funds misappropriation traditionally increases for operations overseas where cultural practices, internal controls, training, supervision and checking is often more vulnerable than in Australia.
- Awarding of contracts and other appointments through conflict of interest, abuse of position and other corrupt and collusive conduct.
- Co-mingling of funds to be used for legitimate and terrorist purposes to disguise all funds as being for legitimate purposes.
- Scam pop-up charities whose sole purpose is to raise and transfer funds overseas for terrorist purposes.
Where there is a lack of awareness of compliance obligations, risk identification and assessment, and inadequate preventative and detective controls, these risks can and will result in financial crime
Often this situation is backgrounded by a lack of policies, procedures and resources to ensure basic internal controls are in place, including measures such as segregation of duties, competitive tendering, background checks and due diligence, financial reporting, budgeting analysis and auditing, whistleblowing programs and enforcement.
However, the overriding reason many charities and Not for Profit organisations succumb to financial crime is culture. This often reflects complacency, management override and lack of enforcement of compliance by “turning a blind eye for the greater good”. This is particularly the case where, prima facie, strong internal controls appear to be in place; however, in practice, management overlooks inadequate procedures and questionable actions with the rationale that corners need to be cut in order to deliver urgent services and aid.
A typical example is making facilitation payments and cash bribes in order to ease delivery of foreign aid in developing countries suffering from conflicts and/or natural disaster, which invariably have more accepted practices of bribery and corruption.
Directors and committee members need to ensure informed decisions regarding the organisation’s appetite for risk are canvassed up-front. They also need to be alert to indicators of cultural practices that provide opportunities for financial crime, such as those outlined above.