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Learn what types of fraud your organization might be susceptible to while improving awareness and learning what things can be done to protect from fraud and abuse.
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Detecting & Preventing Fraud in Nonprofits
Presented By: W. Andrew Powell, CPAPrincipal Halt, Buzas & Powell, Ltd.
Detecting and Preventing Fraud in Nonprofits
Increase understanding of the types of fraud an organization may be most susceptible to
Improve awareness of the importance and application of an organization wide approach to protecting against fraud and abuse
What things your organization can implement to protect against fraud and abuse
Our Objectives for Today
Webster’s dictionary
The Association of Internal Auditors
Definition
Occupational◦ Definition – use of one’s occupation for personal enrichment
through the deliberate misuse or misapplication of the employing organization’s resources or assets
◦ Categories of occupational fraud Asset misappropriations Corruption Fraudulent statements
Type of Fraud
Association of Certified Fraud Examiners (ACFE)
Every two years issues a “Report to the Nation” dealing with Occupational Fraud
The 2006 results are from a study of data from 1,134 cases of fraud
ACFE
147 Cases involving NFPs, schemes included:
2006 ACFE “Report to the Nation”
Scheme Cases Percentage
Corruption 43 29.3%
Billing 42 28.6%
Expense reimbursements 42 28.6%
Check tampering 36 24.5%
Skimming 33 22.4%
Cash larceny 26 17.7%
Non-cash 21 14.3%
Payroll 19 12.9%
Fraud statement 8 5.4%
Wire transfers 8 5.4%
Register disbursements 1 0.7%
How fraud was detected
2006 ACFE “Report to the Nation”
What type of anti-fraud measures existed in the organizations
2006 ACFE “Report to the Nation”
Of all the 1,134 cases in the 2006 study:
23.4% resulted in 25% or less in recovery amount
18.1% resulted in 26% to 75% of recovery amount
16.4% resulted in 100% of recovery amount
42.1% resulted in no recovery
2006 ACFE “Report to the Nation”
Opportunity IntentMotiveConcealmentRationalization
Factors Present in All Frauds
Financial condition of the organization Pressure to present results for funders and
general public Internal accounting controls Integrity level of corporate leaders and
employees Commitment to organizations value system Reward systems for ethical behavior
Why is an Organization Susceptible to Fraud
Personal traits and characteristics of executives and employees
Organizational culture and dynamicsPeer pressurePerception of detectionSwiftness, certainty, and severity of
punishment
Why is an Organization Susceptible to Fraud (cont’d)
Types:◦ Investment scams◦ Vendor ◦ Customer
Forms:◦ Theft of intellectual property◦ Check and credit card fraud◦ Money laundering◦ Computer and internet◦ Contract and procurement◦ Identity theft
Other Types/Forms of Fraud
Environment of trust Excessive control by founder, exec director, major
contributor Board of Directors lacking financial expertise Existence of nonreciprocal transactions Lack of resources for financial management Job security linked to program and financial reporting
(especially an org with gov’t grants)
Characteristics that Open up a NFP to Fraud
Ghost employees Sub recipient fraud Expense reimbursements Skimming of charitable contributions Financial assistance Founder/leader syndrome Fundraising
Types of Fraud in NFPs
Reputation impact◦ Program management◦ Personnel recruitment◦ Fundraising◦ Overall image
Employee morale Actual loss of assets or resources Insurance coverage Investigative and prosecution costs Corrective action
Cost of Fraud to NFP
Acknowledge that fraud and abuse is an organization issue
Establish a practice of periodic risk management as it relates to fraud and abuse
Develop an organizational model for controlling fraud and abuse
How does a NFP Cope
Organizational facts:
◦ Everyone in the organization has a role in detection and prevention
◦ Traditional internal accounting controls play a role◦ Primary reliance on the external audit is not enough
How does a NFP Cope
Organizational facts (cont.):
◦ People and circumstance change over time, which may increase the risk
◦ The real cost, once discovered, can not be measured in terms of dollars
◦A probability exists that some level of fraud or abuse may already exist or could happen in the near future
How does a NFP Cope
Risk management activities:
◦Assessment
◦Reduction
◦ Transfer
◦Acceptance
How does a NFP Cope
Organizational model for controlling fraud◦ Establish appropriate financial controls as related to
opportunities to commit fraud◦ Establish non-financial systems to deal with fraud risk
factors◦ Establish a tone at the top relating to fraud
How does a NFP Cope
Experiences to share
Additional comments
Other
Questions
W. Andrew Powell, CPA Principal
Halt, Buzas & Powell, Ltd.(703) 836-1350
