Nonprofit Fraud Controls

The 2022 Report to the Nations from the Association of Certified Fraud Examiners reports that not-for-profits are the least likely type of organization to experience occupational fraud. And nonprofit fraud controls can be inexpensive to put into place. For example, a code of conduct, mandatory vacations, fraud training for employees, and refusal to override fraud controls can reduce potential losses for nonprofits.

Provide Adequate Oversight

According to the ACFE report, the median loss for defrauded nonprofits is $60,000, considerably less than the $120,000 median for all organizations and the $138,000 median for government agencies. However, nonprofits generally have much less to lose than the average bank, manufacturer or taxpayer-supported agency.

A general lack of financial and staff resources — in addition to less vigorous oversight and enforcement of internal controls — could make nonprofits fertile ground for fraud. Although many try to foster a trusting, familial culture, this can lead to risky lapses. Managers may, for example, rubber-stamp expense reimbursement reports, neglect to segregate accounting duties, or allow unproven staffers or volunteers to accept cash donations.

Implement Internal Controls

The ACFE has found that nonprofits adhere at lower rates than for-profit companies to internal controls such as surprise audits, formal fraud risk assessments, management reviews, and internal audits. In fact, nonprofits are the most likely type of organization to override or ignore internal controls.

Some of these controls can be costly, of course. But not all effective anti-fraud measures are expensive. For example, adopting a code of conduct is closely associated with lower fraud losses in all types of organizations. Other inexpensive initiatives associated with lower fraud losses include employee fraud training, mandatory vacations and strong management oversight.

Launch a Fraud Hotline

Confidential hotlines have consistently proven their weight in gold if you decide to spend on fraud detection and prevention. According to the ACFE, organizations of all types with anonymous hotlines or web forms made available to staffers and other stakeholders cut fraud losses by 50% or more.

It’s particularly important to communicate the private nature of a hotline to employees, so they feel free to report suspicions without fear of reprisal. To help ensure anonymity and enable whistleblowers to report from home, contract with an outside service that can provide 24/7 monitoring.

Commit to Enforce

Although you can’t control the thoughts of criminally minded employees, you can make occupational fraud difficult to commit, but it requires executives and managers to enforce controls and provide reasonable oversight. Contact us to help evaluate your nonprofit’s fraud controls and recommend effective fraud-prevention tools.

Meet our fraud experts

How can we help?

  • Should be Empty:
  • Topic Name:

DISCLAIMER: This blog is provided for informational purposes only and is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant. Presentation of the information in this article does not create nor constitute an accountant-client relationship. While we use reasonable efforts to furnish accurate and up-to-date information, the evolving landscape surrounding these topics is supported by regulations or guidance that are subject to change.

We Value Your Privacy

This site may use cookies to store information on your computer. Some are essential to make our site work and others to improve the user experience. By using this site, you consent to the placement of these cookies and accept our privacy policy.