Fraud is currently costing the not for profit sector more than £1.65 billion a year but more than £659 million of this loss could be prevented through the application of improved counter-fraud processes according to a new academic report published by BDO, the accountancy and business advisory firm, and the Centre for Counter Fraud Studies at the University of Portsmouth.

The report, Minimising Fraud and Maximising Results for Charitable Purposes, released today, shows that the UK not for profit sector could better protect itself against fraud, freeing up additional resources for charitable purposes.

The report highlights that as much as £659million could reasonably be expected to be saved by the sector within two years, through the adoption of improved counter-fraud measures, including the development of strong counter-fraud cultures, the creation of meaningful deterrents and the revision of processes that remove weaknesses which provide opportunity for fraud.

Examples of some of the largest recorded not-for-profit sector fraud cases include:

In 2013 a businessman was jailed for three years and nine months after pleading guilty to taking at least £213,000 from charity collections.

He was contracted by charities to hire collectors to stand outside supermarkets and organise collections, taking a cut from what was collected.

However he failed to declare most of the cash that came in.

Much of the money is still unaccounted for as it was taken directly from the buckets and used to pay for holidays or shopping.

In 2012 fraudsters conned several charities into parting with £685,000 for the distribution of letters by undercutting the Royal Mail.

1.3 million letters were left unsent and then destroyed by the fraudsters.

In addition to the cost, the charity also lost out on millions in unsent donations that it would have received had the letters been sent.

Globally, the cost of fraud currently averages 5.47% of expenditure and is up 20% since the onset of the recession.

If the not for profit sector followed the successful path of many organisations that have specifically targeted the reduction in the cost of fraud – where reductions of as much as 60% have been achieved (including 40% in the first year) – the benefits would be dramatic.

A ‘typical’ top 10 charity could save more than £10 million by reducing its cost of fraud by the same extent as has been achieved elsewhere.

Professor Mark Button, director of the Centre for Counter Fraud Services, University of Portsmouth: “This report uses information drawn from fifteen years of research to highlight practical benefits which charities can gain from countering fraud effectively.

"The Centre for Counter Fraud Studies works closely with BDO to bring together academic rigour and specialist experience. We hope that the report results in real gains for the sector.”

Jim Gee, director of Counter Fraud Services at BDO, added: “With many charities and other not-for-profit organisations operating on a shoe string budget it can be difficult for them to allocate extra resources to improving counter-fraud measures.

"However, with the cost of fraud in the sector estimated to be running at some £1.65 billion annually, and the reasonable expectation of recovering as much as 40% of this in a two year period, the benefit of careful investment to strengthen counter fraud arrangements could far outweigh the cost.”

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