Can your not-for-profit organization afford to lose around $82,000 due to fraud this year? That was the median loss found by the Association of Certified Fraud Examiners’ 2016 Report to the Nations on Occupational Fraud and Abuse when studying cases within the industries of religion, charity, and social services. I have the feeling that wasn’t added as a line item when you were creating the upcoming year’s budget. 
Now I don’t want to throw that number out to scare you, but I do want you to be aware that fraudulent activities can have an effect on your not-for-profit organization and those results could be devastating.
Common Not-for-Profit Frauds
In the ACFE 2016 Report to the Nations on Occupational Fraud and Abuse study they found that the most commonly occurring fraud schemes in not-for-profits dealt in the areas of billing, check tampering, expense reimbursements, and corruption. The chances of fraud schemes going unnoticed can be minimized greatly by just establishing some strong basic control processes. In some cases, for instance dealing with corruption (bribes, kickbacks, bid rigging), it may take more analyzing to see where the weak points are at and establishing the right controls to prevent them.
Internal Control Tips
Fraud schemes can vary greatly with how complex they are, and every organization has different areas where they can be more susceptible to fraud occurring. Below are a few general internal control tips not-for-profits can use that can at least get you going in the right direction to minimizing some of those risks.
- Require dual signatures on checks over a set dollar amount.
- Make sure accounts are reconciled and reviewed on a timely basis. This should be done by someone who is not also involved in the receipt and disbursement process.
- Try not to allow a sole individual to be responsible for all or the majority of accounting functions.
- Expenses should be reviewed for supporting documentation and done by someone independent of the disbursements process.
- Credit card transactions should be reviewed and require supporting documentation as deemed necessary. Also placing limits on credit card usage is great practice so anything outside of the norm can be easily flagged.
Need help establishing internal controls? Contact our team Here.
More than Just Controls to Prevent Fraud
One more tip I would like to add is not necessarily a process but more of a state of mind, and that is being professionally skeptical. With a lot of not-for-profits everyone likes to walk around with their rose colored glasses on and assume that everyone is doing their job and is striving for the purpose of their organization. I would love to say that is the case, but too many headlines and statistics like to state otherwise.
Now being professionally skeptical doesn’t mean going over the top and assuming that everything is fraudulent. It’s just taking that extra second to do your due diligence and make sure that if something appears a little out of the ordinary that it is looked into a little further for legitimacy.
New Year’s Resolution
With the start of the New Year make it your not-for-profit organization’s resolution to tighten up those internal controls and develop that professional skepticism. By doing that it will minimize the chances of your not-for-profit organization making the wrong type of headline or statistic in the upcoming year.
Depending on staffing, internal controls can become difficult to establish with a lack of personnel. Consult with an internal control or fraud specialist to ensure that your processes are on track.
By Brian Marchelewski Jr, CPA, CFE
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