Frauds are committed within non-profit organizations every year, ranging from employee embezzlement and asset misappropriation to misstatements of financial reporting. These frauds can cause both financial and reputational damage, which leads to support from donors, grantors and other public sources most likely suffering.
Common asset misappropriation schemes include:
Common financial reporting fraud includes:
Contributory factors leading to fraud at non-profits include having an atmosphere of trust, limited resources, weaker internal controls, large amounts of cash flow from various sources, high staff turnover, lack of business and financial expertise and reliance on volunteer boards, among other factors.
The first step to preventing fraud at your non-profit is to determine which contributory factors exist at your organization. The first factor that is typically addressed is internal controls. Organizations should ask themselves the following questions:
Other steps management should take to reduce exposure to fraud include remaining alert to changes in lifestyle of management, periodically reviewing travel and other expenses and incorporating fraud questions in process or day-to-day discussions. Sitting down as a management group or board of directors and reviewing the above factors will go a long way in helping prevent fraud at your non-profit.