Last week we focused on factoring fraud, which is when third party funds turn out to be fraudulent.
In this episode, we focus on grant fraud where the benefactor is a legitimate organisation. There is a high risk a fraudster can pocket considerable sums when systems do not detect illegitimate spending.
What is grant fraud?
Fund providers are at risk of being deceived into providing funds for illegitimate purposes. UK grant funding bodies hand over billions of pounds to businesses in various sectors looking to scale their operations. Grant fraud is increasingly common, which is unsurprising with such large sums on the table.
However, the smaller grant applications represent the highest risk. Fraudsters know that applications for smaller sums of money will go through less scrutiny than larger amounts. In order to avoid suspicion, they often target funding bodies for smaller amounts.
Grant funds usually come with terms specifying how they should be used. However, fraudsters spend the money illegitimately, often for their own personal gain.
The National Audit Office investigated the misuse of grant funds. They found that fraudsters spent the money on personal expenditure, overseas travel expenses and simply on awarding themselves. Awarding bodies often specify a time-frame for spending the funds, but some recipients dip into the funds at their leisure.
A real example of grant fraud
BBC’s Panorama in September 2018 revealed that the Bright Tribe Trust in Stockport was awarded £566,000 to demolish unstable walls at Colchester Academy sports centre. However, they propped the walls up using metal braces, which only cost £60,000. It is unclear what happened to the rest of the funds. This case highlights the importance of keeping records showing how awarded funds were spent. If the awarding body comes knocking, it will be able to satisfy itself that no amounts have been misused.
Implications after grant fraud
These scandals can lead to serious reputational damage for the awarding body of the grant fund. The public are keen to blame awarding bodies, as some funds they disperse consist of taxpayers’ money. The public disapproval causes many funding bodies to reduce the amounts they award in the future. This is to the detriment of the vast majority of grant fund recipients, who use their funds to provide valuable services to the general public. If grant funding disappeared, then society would suffer the loss.
Another consequence of grant fraud is that businesses are subject to a higher level of bureaucracy to prove that they are legitimate enterprises. This amounts to a time-consuming drain of resources for many businesses.
Our Forensics team is experienced in unravelling manipulated accounting records and tracing transactions, from quantifying gains to testifying in court in an expert witness capacity.
Please contact our Forensic specialists on 0191 285 0321 to discuss further.
Next week’s episode
Stay tuned for next week’s episode, Modern Day Bank Robbery, where we will look at the techniques fraudsters use to deceive banks and other lenders.
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