Sentencing of charity boss highlights risk of insider fraud

Commenting on the five year sentence handed down to Patrick McLarry, former chief executive of charity Yately Industries for the Disabled for defrauding more than £250,000 from the company’s pension scheme, Tim Merritt, RSM’s Head of Fraud Risk Services said:

‘This case is an unfortunate example of where a lack of segregation of duties, and effective controls and review, has led to a substantial amount of money being transferred to a personal bank account. Whilst The Pensions Regulator has sought a confiscation order to recover the amount lost, the reputational harm that such a case can have on any charity, unfortunately, cannot be undone. When a charity falls victim to fraud, there is often a huge detrimental impact on not only morale, but public trust, which is what the success of a charity relies upon. 

'No organisation is immune to insider fraud, which can result in irrecoverable damage. Due to this increasing risk of insider fraud, organisations should consider undertaking a fraud risk assessment to understand their bespoke fraud risks; targeted proactive reviews and audits in high risk areas to detect fraud and tighten controls; and defining an effective fraud risk policy and a formal fraud response plan. This should be teamed with fraud awareness training for key staff, which is often a valuable, but overlooked, key fraud prevention method.’

Ian Bell, RSM’s Head of Pensions added: 

‘While there is a focus on fraudsters targeting pensioners themselves, this case highlights the importance of internal regulation and controls to protect funds from insiders in such positions of responsibility. This is a stark reminder of the position that trustees have in terms of their overarching responsibilities for implementing strategies that inform pension fraud controls. To mitigate such risks, organisations should consider the inclusion of pension fraud risks on their risk registers, trustee training and improved internal controls.’

Data obtained last year by RSM from Action Fraud revealed that employee fraud accounted for the highest level of fraud losses experienced by charities. In total £1.685m in losses from employee fraud was reported to Action Fraud in 2018-19.