BEST PRACTICES FOR NONPROFIT FRAUD
AND EMBEZZLEMENT PREVENTION
CENTER FOR NONPROFIT EXCELLENCE
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E R I C C . P E R K I N SP E R K I N S L A W , P L L C
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$40 Billion
THE HEADLINES• Former Goochland County Treasurer convicted of
stealing over $180,000 from the county.
• Former CEO of Girls Scouts of Virginia guilty of embezzling nearly $23,000 over a 12-month period. The organization spent twice as much in forensic auditing costs to figure out what happened.
• Former President of Ashland Little League convicted of stealing over $20,000 from the organization.
COLLATERAL DAMAGE AND COST
• Loss of Revenue•Distraction from Mission• Loss of Public Trust• Public Embarrassment•Disillusionment Among Volunteer Base
CONTRIBUTING FACTORS
• Education and Awareness• Oversight• Internal Controls• Engaged Board of Directors
EDUCATION AND AWARENESS
• New board orientation• Annual leadership and staff development
OVERSIGHT AND INTERNAL CONTROLS
• Multiple layers of review and approval…tedious but important!!! Examples include: • Multiple signatories on checks (careful about signature stamps and
never pre-sign checks)• Multiple sign-offs to approve expenditures• Supporting documentation requirements
• Segregation of duties• Don’t let the same person prepare payment records, authorize
payments, disburse funds, and reconcile bank statements.• Maximize use of automated controls (e-notifications and alerts on bank
and credit card accounts)
OVERSIGHT AND INTERNAL CONTROLS
Miscellaneous Suggestions• Do an annual inventory of fixed assets• Background checks, credit checks, and personality
assessment tests for potential employees• Have an audit committee• Have external audits• Have a Code of Conduct• Have a Whistleblower Policy• Regular communication with donors• Minimize reliance on debit cards and cash
OTHER RISKS•Disclosure requirements (material diversion of assets on Form 990)• Intermediate sanctions (excise tax)• Revocation of Exempt Status• Personal liability to officers and directors
QUESTIONS TO ASK YOURSELF
•What is my organization doing to protect itself?
•What could we be doing better?
•What have I learned today that might be helpful to my organization?
A FEW HELPFUL RESOURCES
• National Council of Nonprofits – Myth: Audits Uncover Fraud (www.ncna.org) (www.councilofnonprofits.org/nonprofit-audit-guide/myth-audits-uncover-fraud)
• BoardSource (www.boardsource.org)
Any Questions?