Charity Commission warns charities of direct debit fraud threat

(Immediate Release - 21 January 2010)

 

 

 

 

The alert below has been issued as part of a new initiative by the Charity Commission’s Compliance Division to inform trustees and members of the public of scams or fraudulent activity carried out within the charitable sector. All current alerts are available to view on our website.

Warning about fraudulent direct debit payments

What is the issue?

The Commission has been made aware of a number of instances where fraudulent direct debits have been set up from charity bank accounts, resulting in the abuse of charity funds.

What can charities do?

Prevention – write to your bank and inform them that no further direct debits should be set up without the specific approval of certain named authorised personnel.

Detection – you should ensure that you regularly check your bank statements and ensure the bank statements reconcile with the charity records. Any unexplained or unusual direct debits must be investigated.

Redress – under the direct debit guarantee scheme, if the charity has been wrongly paying a direct debit, it can reclaim this money from the bank. It is then the bank’s responsibility to reclaim this money from the supplier.

A spokesperson for Bacs Payment Schemes Limited said:

“Paperless Direct Debit is a highly reliable, safe and cost effective method for organisations, including charities, to collect regular payments. Instances of Direct Debit fraud are very low when compared with alternative payment methods like cheque or card. We treat any instances of Direct Debit fraud extremely seriously, even when they take place rarely. We are pleased to work with the Charity Commission in providing this alert to the charity sector”.

Advice from Bacs

Organisations setting up non paper Direct Debit Instructions must verify the identity of the Payer prior to collecting any money; the methods used vary depending upon the associated commercial risk – all are agreed and approved by the organisation’s sponsoring bank. For organisations providing services and goods, for example, Bacs makes a list of stringent verification measures available in a secure area of its website. However, for obvious reasons, and in the interest of fraud prevention, these measures must remain confidential.

Organisations collecting by Direct Debit must also confirm, in writing, the Instruction given by the customer within three days of setting up the Direct Debit. Alternatively the organisation must write and give Advance Notice of the transaction, normally ten working days prior to it leaving the customer’s account. In line with standard banking industry recommendations, all consumers are advised to keep their personal details secure, regularly check their bank statements, monitor their bank balance, open all post and dispose of it with care.

For more information about direct debits please see the Bacs website.

For more information about charity trustees’ legal duties and responsibilities for ensuring strong financial controls please see our guidance CC8 Internal Financial Controls for Charities.

End

Notes to Editors

1. The Charity Commission is the independent regulator of charities in England and Wales. See www.charitycommission.gov.uk for further information or call our contact centre on 0845 300 0218.

2. Our mission is: to ensure charities’ legal compliance, enhance charities’ accountability, encourage charities’ effectiveness and impact and to promote the public interest in charity.

3. More information about the Charity Commission’s Compliance Division can be found in Charities Back on Track, a report on the themes and wider issues arising from the Commission’s compliance work. This can be found on the Commission’s website.

PR02/10

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