Fraud and Your Nonprofit Organization
Fraud in the nonprofit world can have staggering impacts to your mission. As a nonprofit, you experience an increased financial risk. Due to budget size and restraints, nonprofit organizations will feel the impact of a negative incident (such as fraud) on a far larger scale than a for-profit organization. As such, instances of fraud, misstated financials, and stolen or damaged assets can have severe consequences in this sector.
- Asset misappropriation schemes made up 87 percent of reported cases.
- Reported frauds last approximately 18 months before detection.
- The median loss caused by occupational fraud was $140,000.
- Approximately 85 percent of fraudsters are first-time offenders.
Initiate Internal Controls
Separation of duties include:
- The person who requisitions the purchase of goods or services should not be the person who approves the purchase.
- The person who approves the purchase of goods or services should not be the person who reconciles the monthly financial reports.
- The person who approves the purchase of goods or services should not be able to obtain custody of checks.
- The person who maintains and reconciles the accounting records should not be able to obtain custody of checks.
- The person who opens the mail and prepares a listing of checks received should not be the person who makes the deposit.
- The person who opens the mail and prepares a listing of checks received should not be the person who maintains the accounts receivable accounting records.
Blue Avocado has a great sample Whistleblower Policy
Many times people do not realize that their interests or activities may result in a conflict with the nonprofit organization they are a part of. It is a best practice to have a conflict of interest policy written and have it reviewed yearly. It is a good time to discuss situations that could occur so if conflict arises there is a policy in place and the board is prepared.
The IRS has a sample Conflict of Interest Policy to help you get started:
Record Retention and Destruction Policy:
View a list of how long to retain documents from Blue Avocado
Also establish yearly fraud and ethics training. This will educate employees as well as remind them that the organization takes fraud matter seriously. As mentioned above, having a Whistleblower Policy will let employees know retaliation is not allowed if they do come forward with findings. Have at least quarterly communication regarding fraud, to keep it at the forefront of everyone’s mind.
Know the Offenders
- Male (65%) – Female (35%)
- 54% between 31-45 years of age
- College educated
- Never charged with or convicted of a crime
Oftentimes, simply knowing that they will be caught is enough to deter a person from committing fraud. Proper controls give everyone peace of mind, guaranteeing fraud will be swiftly discovered while removing the temptation to commit it.
- Read "9 Sobering Stats About Fraud" by The Nonprofit Times
- Read "Your Organization is Vulnerable: The Facts About Nonprofits and Fraud" by Sobel & Co. LLC
- Find a sample Whistleblower Policy from Blue Avocado
- Find a sample Conflict of Interest Policy from the IRS
- Discover how long you should be retaining documents with Blue Avocado's assistance
- View a Document Retention and Destruction Policy from The Montana Nonprofit Association
- Note: the cool image from above can be found on The Frontline Newsdesk.