You have a top-notch team. Everyone is focused and dedicated to your mission. The thought of one of them skimming a little something off the top for themselves doesn’t even cross your mind. They’re good people helping you do good things, right? Think again.
In our Nonprofit Fraud Quick Guide we debunk the myth that only “bad” people commit fraud. Unfortunately, the reality is good people can still do bad things, driven by necessity, greed, and opportunity. In fact, top fraud schemes at nonprofits, as reported by in the 2016 Global Fraud Study by the Association of Certified Fraud Examiners, include: corruption (29 percent), billing (25 percent),expense reimbursements (25 percent), and check tampering (25 percent).
How does this happen? A lack of internal controls plays a BIG role. In the same study it was reported that the most prominent organizational weakness that contributed to fraud was a lack of internal controls, followed by an override of existing internal controls.
By definition, internal controls are financial management practices that are systematically used to prevent misuse and misappropriation of assets, that occur through theft and embezzlement. The objective of internal controls is to put “checks and balances” in place to protect the assets of the organization.
A perfect example of checks and balances is an appropriate segregation of duties, which can be achieved by implementing the following internal controls (just to name a few):
- Accounts Payable – The person who authorizes purchased goods or services should NOT record or provide approval for an invoice
- Accounts Receivable – The person responsible for receipt of payment and preparing a deposit should NOT have responsibility for recording and authorizing transactions, or for bank reconciliations
- Checks – The person handling money, such as a bookkeeper, should NOT also sign checks, and/or larger checks over a certain amount should always require more than one signature
To learn more about how your organization can safeguard your mission through proper financial controls that not only help deter fraud, but also promote clean audits, download Abila’s Nonprofit Controls: Ultimate Compilation Guide. Do your part to put the right controls in place to remain mission-focused and keep your nonprofit protected from audit pitfalls or fraudulent activities.