Not-for-Profit Governance: Fraud Risk Assessment

Governance of not-for-profit organizations is important for the sustainability and future impact of the not-for-profit ‘s mission. One key governance function is risk management and one specific area of risk management relates to fraud risk. Fraud risk is not just related to stealing cash from the organizations, although that is the type of fraud that is most commonly publicized. Fraud risk in not-for-profits also is related to waste and abuse of the not-for-profit’s resources and assets.

The group in charge of governance should regularly monitor and assess the risk of fraud in the organization. The first step is to ensure that there are written policies and procedures in place that set expectations for employees’ behavior and use of organization resources. Monitoring the policies is an important aspect of the policies, because without monitoring and enforcement the policies have little impact. Ensure that the procedures established contain adequate internal controls and segregation of duties to the extent possible. Use the governing body as a resource to mitigate risks in these areas when they are not feasible due to the nature of the organization.

As a member of the governance group remember these key points:

  • Acknowledge that fraud is a risk and be aware of the changing environment of the organization.
  • Stay updated on the mission and functions of the organization.
  • Perform timely and meaningful reviews of the financial reporting.
  • Make sure to review relevant financial reports that provide insight into the operations (i.e. if abuse is a concern review vendor logs or employee expense reimbursements).
  • Brainstorm possible frauds that could be perpetrated in your Organization and how they might be executed.
  • Identify the weaknesses within your Organization which would allow for such frauds to occur.
  • Respond to the fraud risks by either accepting the risk, transferring the risk (i.e. insurance), or mitigating the risk by implementing new policies or procedures.
  • Remember that personal bias exists and try to remain neutral in performing such assessments.

Contact Andrea Addo, CPA, CFE, CITP, at 952-941-3425 with any questions.

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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.

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