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. Reported 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:

http://www.bacs.co.uk/helpcentre

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.