Using Technology to Tackle the Issue of Charity Fraud

January 23, 2017



In a previous post, we highlighted how Mobeewave’s in-person money collection technology can help charities overcome the challenge of an increasingly cashless society. But in addition to providing a way to maximize donations, this digital alternative to face-to-face cash donations can also play a role in addressing the issue of charity fraud. This post will look at the scale of the issue of fraud in charities, the different types of fundraising fraud and the ways that Mobeewave’s technology can help philanthropic organizations deal with this problem.

A Pressing Problem in the World of Philanthropy

Few if any parts of the economy are immune from the threat of fraud. But the impact of such a problem can be particularly significant to the nonprofit and philanthropic sectors – where every dollar can make a difference.

While exact figures are difficult to come by, estimates from the UK and the US go a long way to demonstrating the scale of the problem of fraud in charities. Charities Against Fraud suggests that up to £2 billion per annum may be lost to fraud in the UK. The organization also highlights the fact that in 2015 the National Crime Agency noted that: “…. Individuals, the private sector and the charity sector lose billions of pounds each year to fraud.”

In the US, a New York Times article in 2008 drew attention to a report from four professors who specialize in nonprofit accounting. It estimated that the overall cost of fraud in this sector totalled $40 billion for 2006 – or some 13 percent of the roughly $300 billion given to charity that year.

This issue was further highlighted in a 2016 Reuters article on a then proposed Republican bill in Congress to prohibit the U.S. Internal Revenue Service from collecting the names of top donors to charities and other nonprofit groups. It indicated that charity scams affect at least 1 percent of annual US giving, or about $3.6 billion a year.

Fraud on Many Fronts

The sheer size of the problem may be related to the fact that there are a number of different types of fraud. They are largely divided into what the Australian Charities and Not-for-profits Commission describes as ‘Internal Fraud’ and ‘External Fraud’. These activities can be carried out by an employee or volunteer associated to a philanthropic organization (Internal Fraud) or someone totally unconnected (External Fraud).

The Commission gives the following list of examples for both categories of fraud activities in charities:

Internal Fraud:

  • Stealing goods or money from charity shops or other trading activities
  • Stealing cash donations
  • Misusing charity banking facilities for personal expenditure (such as credit cards, debit cards or internet banking)
  • Claiming non-existent, excessive or inappropriate expenses
  • Creating false or inflated invoices or purchase orders to obtain payment for goods and services that have not been supplied
  • Submitting false applications for grants or other charitable benefits
  • Creating non-existent beneficiaries or employees for the purposes of directing unauthorized payments.

External Fraud:

  • Using false invoices to obtain money from a charity
  • Committing identity fraud, for example, hijacking a charity’s bank account
  • Unauthorized fundraising in a charity’s name, such as setting up a fraudulent disaster appeal website.

How Mobeewave Can Help

As Charities Against Fraud highlights: “Technology enables fraudsters to carry out increasingly sophisticated attacks, more quickly and without detection.” But technology may also hold the key to combating a number of the abovementioned fraud activities.

Mobeewave’s solution enables anyone to accept payment in person from a contactless card or mobile wallet using just their phone. While this innovation won’t solve all of the incidents of fraud that philanthropic organizations are dealing with, it can certainly address some of the issues – especially those involving cash donations.

The collecting of cash donations through fact-to-face, spontaneous fundraising efforts is a vital activity for a significant number of charities. However, it does open up organizations to the risk of cash donations – particularly unrecorded donations – being stolen.

Mobeewave provides a convenient and secure way to digitize in-person, cash donations. With a simple tap, donations that would otherwise be gathered as an unknown cash sum – which would only be logged at a later date – can now be registered and deposited directly into a charity’s bank account.

This solution can also directly benefit donors, by reducing incidents of external fraud – particularly unauthorized, in-person fundraising in a charity’s name. As it is provided as a white-label solution to philanthropic organizations and financial institutions, Mobeewave’s technology can only be harnessed by official parties. Potential donors can therefore rest assured any donations they make will end up in the right place.

Finally, as an open-loop solution, Mobeewave requires only the person receiving a payment to be signed up to the service. The donor only needs to tap their card or mobile wallet to the recipient’s phone to make a donation. Removing the need to share personal information or credit card details ensures the donor themselves are protected against the threat of fraud.

Interested in a particular topic? Want to get our take on a developing issue? Let us know and we could address it in a future post