Fraud is not only the physical theft of assets but can also take the form of manipulating financial results. There are many drivers for this type of fraud, which includes the trigger of a bonus payment and the release of funds as part of a contractual agreement, through to simply seeking to be recognised as a high performer to be promoted or retain one’s employment.
An example is a charity not meeting financial targets at the end of a financial year. Reasons for this can vary, it could be due to a fundraising initiative not being as successful as anticipated, a lower amount spent on beneficiaries than as planned; or investment assets not performing as well as expected. Whatever the cause, it may provide motive to manipulate the figures to improve the picture shown in the financial statements.
It is normal for plans for the following year to be set out in the Trustees’ Annual Report. If the expected results have not been achieved there can be significant temptation to disguise poor results when reporting on the outcomes.
Having strong controls in place should help prevent manipulation of results. Trustees should meet regularly to discuss results and management should provide detailed breakdowns of actual versus budget figures so that legitimate reasons for variances can be explained to those charged with governance. This includes variances which suddenly turn from a negative outcome, such as a deficit to a surplus without adequate explanation.
Additionally, the trustees should consider the background and experience they have as a board to ensure there is adequate understanding of financial information, with the confidence and ability to ask the right questions of those who present financial information.
If possible, depending on the size of the entity, it would be useful to have more than one person involved in the preparation of monthly and annual results.