I’ve always thought the best crimes are the ones where people don’t realise they’re being robbed. Take the One Cent Thief back in the early ’90s, quietly rounding fractions of cents from bank accounts into his own. As a banker he was a part of the system and could see the lack of oversight and the opportunity. Clever enough until he started living well beyond his means and attracted attention. The eyes of the risk people would have been focused on the big bucks elsewhere.
Lets face it: money and talk about money is pretty pretty dull. In the community space that’s why so many charities focus on story telling: a better way to capture hearts and minds. But if we look at this as an opportunity through a risk lens then perhaps there are some opportunities for those with inclination. Community groups themselves are susceptible to fraud within themselves as entities: we see stories like this all the time, although many likely remain quiet in order to protect the brand and retain the confidence of funders and communities. But often they come to light via governance or audits. So lets look in places where there is no oversight and large amounts of cash.
Now, to be clear, what follows is a fictional scenario. I have no direct evidence that anything like this is happening. But I do think the community funding model relies heavily on trust, and I’m not convinced the risks are particularly well managed, mitigated or monitored.
So let’s imagine I’m a moderately dishonest person.
First, I set up a charity with an associate as a second trustee and a fairly boring name. I’d probably pick someone with a different surname just to avoid making life too easy for anyone trying to connect the dots. We put together some grant applications and get to work. I keep it small enough so I am not required to have an audit.
I start writing grant applications and ask for rent.
Most charities operate out of somebody’s home. That’s completely normal. What’s less normal is claiming substantial amounts of funding to cover that “rent”. Yet imagine a charity applying for, say, $80,000 a year in grant funding under that heading.
Does your PTA invoice itself for using the dining room table? Does your local football club charge itself for keeping records in someone’s spare bedroom? Of course not.
But if you were inclined, there’s money sitting on the table.
Next application: salaries.
Many charities have no paid staff at all. According to Gemini AI, only 15% of New Zealand charities employ people. So imagine creating yourself a reasonably well-paid job, keeping the paperwork tidy, and collecting the salary. Better still, do a little genuine work. Run a class once a week. Hold some events. Maintain social media. Have real stakeholders. That way, anyone looking from the outside can see that the charity exists and does stuff.
The problem is that very few people ask whether the costs are reasonable, and those who know the truth are in the tent.
Maybe those weekly classes cost ten times what similar organisations spend. Maybe the salary is far higher than comparable roles elsewhere. We don’t tend to benchmark charities against one another (my day job was benchmarking), so inflated costs can hide in plain sight. And keep moving: close it down every few years and start a new one.
So far, so good. But how would this actually work?
That’s where you’d need some willing partners.
Partner One: the pokie provider
Not every pokie provider would entertain this sort of thing. Most wouldn’t. But if I were looking to exploit a potential hole in our systems, I’d be interested in trusts that display certain patterns:
None of these attributes prove wrongdoing. But if I were looking for a partner these may some behaviours I’d look for.
Partner Two: the venue
Technically, venues aren’t supposed to influence where grant money goes. In practice, however, there are plenty of examples where a venue changes gaming trust providers and, before long, a particular charity starts receiving funding from the new operator.
Sometimes the relationships are even closer. In one prosecuted case the venue owner was also the recipient of grant money. This came to light thanks to a whistle blower.
In fact, I reckon the venue could do a deal with the pokie operator to get a kick back from the grant money. Based on a database I developed a while ago I can see three trusts where their registered address is a pokie venue.
If I were imagining ways to skim money from the system, I might arrange for a venue to charge a charity rent. Or perhaps negotiate some sort of kickback arrangement linked to grant funding. As a legitimate charity or incorporated society if you’re receiving 90% of something you weren’t getting before, perhaps that’s still an attractive proposition.
The bigger question is this: who would notice?
That’s the uncomfortable part.
The system relies heavily on whistleblowers. Our systems are pretty high trust. Regulatory investigations are expensive, time-consuming, and relatively rare. Most people applying for grants are focused on their own organisation’s finances. They apply, they get funded or declined, and they move on. Based on my experience with the regulator, they want the smoking gun wrapped up in a big bow. Things that look off, or are a bit sniffy, seldom get a look in.
Because the money belongs to “the community”, nobody feels personally robbed when it is misallocated. The perfect crime.
Sadly, I’m far too honest to live like this and would likely break out in a huge rash as the required behaviours wouldn't align with my values. I would rather focus on actively managing this risk. Here’s two options:
Love to talk with you if you think this is at all interesting. If you want to dive into the data a bit more than happy to do so. Check out my website http://www.delfi.co.nz/
Lets face it: money and talk about money is pretty pretty dull. In the community space that’s why so many charities focus on story telling: a better way to capture hearts and minds. But if we look at this as an opportunity through a risk lens then perhaps there are some opportunities for those with inclination. Community groups themselves are susceptible to fraud within themselves as entities: we see stories like this all the time, although many likely remain quiet in order to protect the brand and retain the confidence of funders and communities. But often they come to light via governance or audits. So lets look in places where there is no oversight and large amounts of cash.
Now, to be clear, what follows is a fictional scenario. I have no direct evidence that anything like this is happening. But I do think the community funding model relies heavily on trust, and I’m not convinced the risks are particularly well managed, mitigated or monitored.
So let’s imagine I’m a moderately dishonest person.
First, I set up a charity with an associate as a second trustee and a fairly boring name. I’d probably pick someone with a different surname just to avoid making life too easy for anyone trying to connect the dots. We put together some grant applications and get to work. I keep it small enough so I am not required to have an audit.
I start writing grant applications and ask for rent.
Most charities operate out of somebody’s home. That’s completely normal. What’s less normal is claiming substantial amounts of funding to cover that “rent”. Yet imagine a charity applying for, say, $80,000 a year in grant funding under that heading.
Does your PTA invoice itself for using the dining room table? Does your local football club charge itself for keeping records in someone’s spare bedroom? Of course not.
But if you were inclined, there’s money sitting on the table.
Next application: salaries.
Many charities have no paid staff at all. According to Gemini AI, only 15% of New Zealand charities employ people. So imagine creating yourself a reasonably well-paid job, keeping the paperwork tidy, and collecting the salary. Better still, do a little genuine work. Run a class once a week. Hold some events. Maintain social media. Have real stakeholders. That way, anyone looking from the outside can see that the charity exists and does stuff.
The problem is that very few people ask whether the costs are reasonable, and those who know the truth are in the tent.
Maybe those weekly classes cost ten times what similar organisations spend. Maybe the salary is far higher than comparable roles elsewhere. We don’t tend to benchmark charities against one another (my day job was benchmarking), so inflated costs can hide in plain sight. And keep moving: close it down every few years and start a new one.
So far, so good. But how would this actually work?
That’s where you’d need some willing partners.
Partner One: the pokie provider
Not every pokie provider would entertain this sort of thing. Most wouldn’t. But if I were looking to exploit a potential hole in our systems, I’d be interested in trusts that display certain patterns:
- Multiple grants to the same organisation every year.
- Significant funding to recently established charities.
- Large grants where supporting documentation appears thin.
- Grants to organisations who get the majority of their income from a single gaming trust.
- Grants to charities with very small governance structures and limited independent oversight.
None of these attributes prove wrongdoing. But if I were looking for a partner these may some behaviours I’d look for.
Partner Two: the venue
Technically, venues aren’t supposed to influence where grant money goes. In practice, however, there are plenty of examples where a venue changes gaming trust providers and, before long, a particular charity starts receiving funding from the new operator.
Sometimes the relationships are even closer. In one prosecuted case the venue owner was also the recipient of grant money. This came to light thanks to a whistle blower.
In fact, I reckon the venue could do a deal with the pokie operator to get a kick back from the grant money. Based on a database I developed a while ago I can see three trusts where their registered address is a pokie venue.
If I were imagining ways to skim money from the system, I might arrange for a venue to charge a charity rent. Or perhaps negotiate some sort of kickback arrangement linked to grant funding. As a legitimate charity or incorporated society if you’re receiving 90% of something you weren’t getting before, perhaps that’s still an attractive proposition.
The bigger question is this: who would notice?
That’s the uncomfortable part.
The system relies heavily on whistleblowers. Our systems are pretty high trust. Regulatory investigations are expensive, time-consuming, and relatively rare. Most people applying for grants are focused on their own organisation’s finances. They apply, they get funded or declined, and they move on. Based on my experience with the regulator, they want the smoking gun wrapped up in a big bow. Things that look off, or are a bit sniffy, seldom get a look in.
Because the money belongs to “the community”, nobody feels personally robbed when it is misallocated. The perfect crime.
Sadly, I’m far too honest to live like this and would likely break out in a huge rash as the required behaviours wouldn't align with my values. I would rather focus on actively managing this risk. Here’s two options:
- Observers on grant distribution panels who have the power to bring in NZ Police where they suspect the law is not being applied. This would be relatively low cost but likely requires a tweak in the law.
- Moving all grant decisions to local organisations (as Invercargill Licensing Trust where those making decisions are voted on by residents) which reduces the potential for nefarious behaviour. This is a more structural change to this solution but it opens up an opportunity for lower costs to serve, better money to good organisations and a potential for benchmarking over time.
Love to talk with you if you think this is at all interesting. If you want to dive into the data a bit more than happy to do so. Check out my website http://www.delfi.co.nz/
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