Skip to main content

Protect your nonprofit from occupational fraud threats




Not-for-profit organizations don’t lose as much to occupational fraud as for-profit businesses do. According to the Association of Certified Fraud Examiners’ (ACFE’s) 2018 Report to the Nations, nonprofits lost a median amount of $75,000 during the 21-month study period, compared with $164,000 for private for-profit companies. Yet few nonprofit budgets can afford a $75,000 shortfall or the bad publicity associated with fraud. Here’s how nonprofits open the door to fraud — and how your organization can shut it.

How thieves slip through

The core of any organization’s fraud-prevention program is strong internal controls — policies that govern everything from accepting cash to signing checks to training staff to performing regular audits. Most nonprofits have at least a rudimentary set of internal controls, but employees bent on fraud can usually find gaps.

Nonprofits typically devote the largest chunk of their budgets to programming, and can be stingy about allocating dollars to enforcing internal controls. This can be especially problematic if executives or board members indicate that fraud prevention is low on their priority list. Nonprofit boards may also inadvertently enable fraud when they place too much trust in the executive director and fail to challenge that person’s financial representations. Unlike their for-profit counterparts, these members may lack financial oversight experience and the knowledge to spot irregularities.

Trust is another Achilles’ heel for many nonprofits. Organizations often regard their staff and dedicated volunteers as family. They may allow managers to override internal controls and let volunteers accept cash donations without oversight — both very risky activities.

Fortify your defenses

Check tampering, expense reimbursement fraud and billing schemes are the three most common types of employee theft found in nonprofit organizations. But proper segregation of duties — for example, assigning account reconciliation and fund depositing to two different staff members — is a relatively easy and effective method of preventing such fraud. Strong management oversight and confidential fraud hotlines are also associated with lower losses due to employee theft.

Indeed, when it comes to employees, you should trust but verify. Conduct background checks on all prospective staff members, as well as volunteers who will be handling money or financial records. Also, provide an orientation to new board members to ensure they have a clear understanding of their fiduciary role.

Finally, handle fraud incidents seriously. Many nonprofits choose to quietly fire thieves and sweep their actions under the rug. However, this tends to encourage fraud by telling potential thieves that the consequences of getting caught are relatively minor. If an incident is hushed up, rumors could do more reputational damage than publicly addressing the issue head-on. It’s better to file a police report, consult an attorney and inform major stakeholders about the incident.

If you suspect fraud in your organization, contact us for help investigating it.

Please contact us for additional information

© 2019


Popular posts from this blog

IRS Announces New Pilot “Pre-Audit” Compliance Program for Retirement Plans

  On June 3, 2022, the IRS announced a new pilot pre-examination compliance program for retirement plans beginning in June 2022.   Under the new program, the IRS will send letters to plans advising them that they have been selected for an examination and will have a 90-day window to self-review the plan’s documentation and operation to determine if they meet current tax law requirements. If the plan does not respond within 90-days, the IRS will audit the plan. If self-review reveals non-compliance, the plans will be able to self-correct the mistakes using the correction principles in the IRS voluntary compliance program (EPCRS).    EPCRS’s self-correction program will be available. If a mistake cannot be self-corrected, an IRS closing agreement under EPCRS will be available based on the voluntary compliance program (VCP) fees rather than the normal closing agreement fees. If the plan does respond within 90 days, the IRS will review the submitted documentation, determine whether it

CARES and Family First Acts provide potential relief for Unions

The Coronavirus Aid, Relief, and Economic Security (CARES) Act and the Families First Coronavirus Response Act both provide potential relief for nonprofit associations. We are still awaiting important details on the many provisions of the Acts, but we wanted to provide a summary of some of the programs which will be of interest to our Union clients. We will update this bulletin as additional information becomes available. Update for Union Clients