Nonprofit Fraud

by Tim Goetz

nonprofit fraudFraud happens in the workplace, and a recent study indicated it can take a long time to detect, and nonprofit organizations are not insulated from occupational fraud. In fact, they may be more susceptible.

Criminologist Donald R. Cressey identified The Fraud Triangle in the 1950s. His research indicated a combination of 3 factors that lead to people committing fraud.

Common Components Of Fraudulent Behavior

1. Pressure

A gambling problem or unforeseen expenses can motivate or push an otherwise good employee or volunteer to commit fraud.

2. Opportunity

Some predators look for opportunities and feel entitled to take what is not theirs. Others may stumble across an opportunity that presents itself. This is an internal control weakness, where a person believes no one will miss the funds. Usually the amounts start small, and then the theft grows larger as missing funds go unnoticed.

3. Rationalization

People have the capacity to talk themselves into anything. Many employees who steal rationalize the theft with concepts like:

  • I’m just borrowing the money.
  • I deserve more. They don’t pay me enough.
  • It would cost them three times as much to have someone else do my job.
  • It’s for a good cause.
  • They waste this much money on [XYZ].

There are also 3 main forms of stealing cash from an organization.

Forms Of Stealing

1. Larceny

Larceny is stealing money that is already accounted for. Bank reconciliations, timely accounting postings, segregation of duties, and analyzing your financial records on a consistent and frequent basis can all help detect larceny.

2. Skimming

Skimming refers to stealing money that has not been recorded yet. The organization doesn’t even know it’s missing because it never knew the money was there to begin with. This form of stealing is more difficult to detect because there is no audit record. For example, cash may be donated, and the donor doesn’t request a receipt. Or the receipts are not numbered so the volunteer or employee discards the duplicate receipt copies. Good internal controls prevent employees and volunteers from handling cash alone. Analyzing your financial statements can also detect skimming.

3. Fraudulent Disbursements

This type of stealing refers to forged checks, fake invoices, overstated expense reports, overstated refunds, unauthorized use of credit cards, etc.

What do you do if you suspect an employee or volunteer is stealing? Business Management Daily has these suggestions.

Prevention Is The Best Solution

Prevention works. No accounting software program can protect you from fraud on its own. But combining good software with solid internal controls, proper oversight, and good management can help prevent fraud in your nonprofit organization.

Good luck! And remember this blog is just a helpful resource and is not meant to be a substitute for professional services. Always consult a CPA or trusted professional when seeking tax or accounting advice.

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