John Baker from Moore Stephens

John Baker from Moore Stephens speaks to the Counter Fraud Centre on corruption in charities

As part of our video series featuring experts from across the counter-fraud arena, we spoke to John Baker, Director of Counter Fraud and Corruption Services at Moore Stephens. John works in the Forensic Accounting Department and has over twenty years’ experience in fighting fraud and corruption in the public, private and not-for-profit sectors.

In this video, he highlights the ‘red-flags’ that might indicate corruption and shares his top five tips for preventing and detecting fraud and corruption in charities.

What corruption 'red-flags' should charities look for?

Firstly we need to understand why corruption happens. It can be one or any combination of the following - low pay, a lack of transparency, it can be culturally acceptable in the country or the sector, so it becomes the rule rather than the exception. Monopolisation in sectors can lead to corruption, and too much discretionary power among one or two people within an organisation can lead to corruption. Quite often poor oversight leads to things like that, but most importantly it is the tone at the top, and if that’s wrong then corruption can become endemic throughout the organisation.

How do you spot it? I think there are many indicators of corruption. These can range from unexplainable lifestyle, bullying individuals, people who force their corruption through the whole organisation. People who have been recruited or promoted into positions they are not qualified, suitable or experienced for can also be an indicator of corruption.

Sometimes unusual business structures are an indicator of corruption. Regular visits by the same providers, suppliers, contractors and excessive hospitality can also indicate corruption. Another one is an unusual turnover of staff. For example, it could be very high - people enter, they don’t like the culture so they leave. Or the turnover can be very low and that is because obviously they are benefiting from the corruption, so why would they leave.

What is the biggest fraud case in a charity you have come across?

The biggest case I was actually involved in was last year in central Africa, involving a humanitarian aid agency. According to the allegations, goods were being cleared under the organisation’s name to evade tax, and goods were then diverted for personal use. Furthermore, other allegations came in about kickbacks, promotions, staff loans, land purchases, mismanagement in relation to construction - a number of allegations.

We sent in a team of fifteen and they were out there for three months. We actually pursued 69 separate lines of enquiry under the one investigation. Data was recovered from servers, from laptops, from phones, PDAs, and we had to undertake a full stocktake of a huge warehouse and full vehicle fleet to actually understand what was happening.

We also called in quantity and building surveyors, because there were allegations about a build, albeit a school, which may not have been the actual final product. We held interviews and as a result of this the file was passed to the charity, which in turn was then passed to the police. And that contained clear evidence of theft, corruption and fraud actually involving the head of the organisation, ten employees and one contractor.

What are your top five tips for defeating and preventing fraud and corruption?

The first has to be a robust anti-fraud and corruption awareness and that is brought about through training. If staff are then trained to spot the signs of corruption, it makes it easier for them to actually report it.

The second is a denial of opportunity, so strong controls should be in place and actually applied. This reduces the opportunity, which is one of the three areas of the fraud triangle.

Effective leadership, having the right tone from the top for me is crucial. If that isn’t right then everything else fails as well. You don’t get the anti-fraud, anti-corruption culture, things are kicked back in terms of training, and controls aren’t applied so actually having the effective leadership is paramount.

It’s also important to have a robust auditing regime. It is a deterrent because people know things are going to get checked and are therefore less likely to actually conduct fraud or corruption, but also just having an audit regime will hopefully pick up some issues that can then be passed onto investigators.

The other top tip is to have a robust pre-employment screening in place, and making sure that you don’t employ people who have a track record of corruption. It isn’t infallible, I’ve dealt with cases and investigated people who have got a clean record that would never be picked up at the pre-employment stage. But again it is a good deterrent, it actually sends out a message to would be corruptors, would be fraudsters that the organisation takes it seriously.

What is meant by an ‘anti-fraud culture’?

I think ‘anti-fraud’, ‘anti-corruption culture’ is one of those things that’s really easy to say you need it but is very hard to define, and even harder to actually implement. But it is a marathon, it is not a 100 metre sprint, and it comes from a whole series of things.

It comes from having the right person in place, the tone at the top, sending out the messages both through the staff and through the contractors and suppliers chain. It is actually then raising awareness of what corruption looks like, so people are trained to spot the indicators. It is sending out the organisation’s ethical standards through policy, through procedure. For instance, it would be best practice for an organisation when at the contracting stage to get a would-be supplier or contractor to agree to their anti-bribery and corruption policy, acknowledge it and say that they will adhere to it.

It’s really about driving home the message that corruption is not tolerated. Statements are put out at board level, reminders are issued, even through simple things like text messages to staff and put on the internet. Even on payslips. In areas where the IT is poor then you have posters. You can have someone who is a fraud and corruption champion whose role, as part of their day job, is to actually reinforce the message, to bring it to the attention of people, through new bulletins, new alerts.

The organisation should be constantly reinforcing the message that fraud and corruption is a bad thing and not to be tolerated.

What impact can training have on a charity’s counter fraud armoury?

I think it is absolutely critical. Without training, staff won’t know what to look out for, they won’t understand their role and their responsibilities, and so having the right training in place is a fundamental part of the anti-fraud and corruption policy we have discussed - telling staff through training what their role is, how they can actually reduce fraud and corruption, how to spot it, more importantly how to report it.

All too often without the correct training staff don’t feel confident in being able to raise a concern. So if the training can reinforce what fraud looks like, what to do if you suspect fraud, and as importantly, if not more importantly, what not to do when you suspect fraud, and then actually giving them a route to make that disclosure. Quite often that can be a route that goes around their line manager, because at this stage they may or may not know whether their line manager is involved.

What is Moore Stephens’s expertise in this area?

Moore Stephens’s international network has been run with over 2,600 partners across the globe, and has more than 27,000 staff. It is ranked in the top ten and we have 636 offices across 105 countries. The member firms of Moore Stephens are an international network, and since 2003 we have a series of international funding offices, we call them international funding institutions, IFI offices, and these are run directly by the London Office, and they cover the whole globe, East Africa, Central Africa, West Africa, right through to the Middle East, and down into Asia. The International Institutions Donor Assurance team, the IIDA team, focuses very much on donor assurance, in which we get involved in a lot of corruption cases.

We have got over 100 staff in the London office, and they work on international donor assurance, corruption investigations, fraud investigations. Amongst our clients are people like the World Bank, the African Development Bank, UN agencies, the EU, The Global Fund and many government ministries.

How are CIPFA and Moore Stephens working together to tackle fraud in charities internationally and in the UK?

Moore Stephens have been working closely over the last year to develop anti-corruption guidance and tools. We have held a number of anti-corruption workshops, with over 50 people who have contributed their thoughts, their ideas and best practice, and we are collating these into guidance. In addition we are also developing training to assist international organisations in their anti-corruption work.