The menace of charity legacy fraud and how to protect your organisation

The world of charitable giving is, for the most part, one of compassion, generosity, and altruism. However, unfortunately, a darker underbelly exists within this noble sphere, as some unscrupulous individuals exploit the goodwill of donors through charity legacy fraud. This deceptive practice involves but is not limited to:

• Fraudulent individuals or organisations misrepresenting themselves as legitimate charities, deceiving well-intentioned individuals who aim to leave a lasting impact through their estate;

• Individuals working within reputable charitable organisations purposely embezzling, diverting or misusing charitable funds for their own personal gain;

• Family members deliberately concealing valuable assets belonging to the estate so that they are not accounted for in the estate accounts, therefore reducing the value of the estate. 

In this article, we will delve into the disconcerting world of charity legacy fraud, exploring the methods employed, the consequences for both donors and genuine charities, and measures to prevent falling victim to this insidious crime.

Understanding charity legacies and fraud

A charity legacy is a gift that a person leaves to a charitable organisation of their choice in their Will and is an effective way to make a lasting difference. Whilst legacy income has reached a new milestone in recent times and is estimated to be worth over £3 billion, charities are believed to lose more than £40 million each year to legacy fraud. 

Whilst charitable donations do not appear to be slowing, fraud remains a hot topic that charities and their staff need to be aware of. The reason for this is that trends demonstrate that fraud increases in times of political and economic uncertainty and unrest. Despite this, charities remain under a legal duty to manage legacy gifts in ways that ensure that the donor’s wishes are respected and are accountable to the Charity Commission. As such, charities need to remain mindful and ensure that training remains up to date so that they remain extra vigilant during times of uncertainty.  

One of the reasons fraudsters tend to target charities may be that charities can be seen as easy to deceive in comparison to other organisations or persons. The reason for this is that it is not uncommon for charities to hold little or no information in respect of a donor’s estate. As such, aggrieved family members, for example, may take it upon themselves to deliberately attempt to conceal assets belonging to the donor, as the risk of being caught is considerably less in comparison to other types of crime. 

As such, charity legacy fraud not only compromises the intended impact of the donor's legacy, but can also damage the internal and external reputation of genuine charitable organisations if they fail to have relevant safety measures in place to reduce the likelihood of becoming a repeated target or victim of fraud.

Deceptive tactics and examples

Charities can become victims of either external or internal fraud. External fraud tends to be carried out by individuals not associated with the charity, whereas internal fraud is committed by employed or voluntary staff members with a connection to the charity. Whilst working for a charity can be an extremely rewarding experience in a number of ways, unfortunately, there can be a culture of over-reliance on trust which can, as a consequence, lead to issues. 

Examples of common fraudulent tactics include the following:

External

The executor of the donor’s estate, whether a layperson or a professional, doing the following:

• Failing to notify the charity of the entitlement under the donor’s Will;

• Underpaying the charity by omitting assets or falsifying documents such as the estate accounts; 

• Stealing assets belonging to the estate; 

• Charging excessive fees to administer the donor’s estate; 

• Deliberately selling assets at an undervalue to a friend or associate.

A relative or carer:

• Stealing assets belonging to the donor’s estate for their own personal gain;

• Concealing estate assets;

• Forging a Will or codicil to alter the wishes of the donor and deliberately decrease the amount the charity receives from the estate;

• Concealing the existence of a Will in the hope that the donor will be deemed to have died intestate, meaning their estate will be distributed as per the rules of intestacy. 

Internal

A staff member or volunteer:

• Diverting legacy income into their own personal bank account;

• Arranging for income to be paid to a bogus co-beneficiary; 

• Deliberately falsifying information contained within the internal legacy administration accounts or the accounts received from the executor of the donor’s estate.

Understanding that charities are always at risk of falling victim to the above examples is crucial for both potential donors and charitable organisations. The reason for this is that the more awareness there is of these potential risks, the more likely charities are to implement steps and procedures to protect themselves and ensure that they receive their full entitlement, meeting the donor’s wishes once their legacy becomes available.  

Preventative measures to be explored 

Whilst being alert to the potential tactics of fraudsters is important, it is key for charities to have sufficient checks in place which are both proactive and reactive. Ensuring that both types of measures are properly implemented will lead to a reduction in the risk of becoming a victim of legacy fraud. 

It is advisable for charities to always remain vigilant and to look for potential warning signs at every possibility. Such warning signs may be, but are not limited to: the donor having no close family members; slow or no notification of a legacy; unusual or unexplained transactions in the estate accounts and assets or liabilities appearing to be inconsistent with the lifestyle of the donor. 

To reduce the likelihood of becoming a target of fraud, charities should explore implementing these suggested measures as a starting point:

• Recruiting qualified or experienced legacy administrators or managers, as they have experience reviewing estate accounts and looking for errors or anomalies which can be rectified at an early stage;

• Signing up to a legacy notification service so that you are notified of any legacies which are due to be received;

• Working alongside other charitable co-beneficiaries to make the best use of resources, which can include meeting to discuss the documentation provided by the executor or nominating one charity legacy officer to liaise on behalf of all charities;

• Obtaining and analysing third-party valuations of estate assets and liabilities and, if in doubt, obtain your own valuations so that these can be compared to the ones provided; 

• Carrying out regular internal reviews of legacy files, prior to their closure, to ensure all income is being properly accounted for and detailed notes are made on the file as to what steps have been taken, key dates, and what steps remain outstanding;

• Seeking expert legal advice as a matter of priority if there are any concerns or suspicions so that these can be handled in a sensitive and time-effective manner. 

Legal and regulatory responses

If a charity suspects they may have been or are currently a victim of fraud, they must act quickly. As mentioned above, they should seek appropriate legal assistance so that questions can be asked of the executor. It is also important to liaise directly with co-beneficiaries to keep them informed of any concerns and inform them of what steps, if any, are being taken to explore the concerns and reduce further potential harm.

Furthermore, it is also worth considering whether the incident should be reported to Action Fraud in England, Wales and Northern Ireland or Police Scotland in Scotland.

Separately, charities also need to be aware that such matters need to be reported promptly to their regulator and that reports to the Charity Commission for England and Wales are treated as serious incidents. Guidance on how to report a serious incident can be found on the government’s website.

Lastly, if concerns relate to a professional executor and their costs for administering the donor’s estate, it is advisable for charities to raise these concerns directly with the individual in the first instance. Most organisations, including law firms, will have internal policies in place for dealing with complaints. If the issues cannot be resolved amicably, it is possible to report such concerns to the Legal Ombudsman. In the event that concerns relate to another type of professional, such as an accountant, it is worth considering whether they are also regulated. Such information should be available on their website or within their terms of business. 

Conclusion

Whilst charity legacy fraud may continue to pose a significant threat to charities and will continue to evolve, charities need to be aware of the importance of building trust between donors and charitable organisations, as it is predicted that legacy income will continue to grow. To maintain trust, charities need to dedicate sufficient resources to demonstrating how they are protecting themselves and their donors from any future harm. This is to ensure that the spirit of giving continues, untarnished by the shadows cast by those seeking to exploit the generosity of well-intentioned individuals.