I recently attended the AICPA Not-For-Profit national conference and was able to speak to nonprofit leaders and auditors about fraud in their organizations. A common refrain I heard was that their organization was too small to have to worry about fraud. Others believe they can trust everyone in their organization, so there is no need to protect against fraud. Unfortunately, everyone who has had it happen to them felt the same way at one time.
Too often there are stories in the headlines about employees taking money from nonprofit organizations, overshadowing the efforts of other employees who are working diligently to move the organization’s mission forward. It is astounding to see how easily fraud is committed within these organizations when due diligence is not taken and available tools are not put in place to help detect this type of activity early on.
Don’t let fraudsters thwart you and your donors from achieving your mission!
Here are my top five takeaways from the AICPA Not-for-Profit Industry Conference on how your organization can easily detect fraud:
Put the processes and tools in place to alert you of suspicious financial activity. This means that your accounting solution should be able to notify you when employees may be engaging in activities that could be detrimental toward your organization, such as when a vendor name is changed or when an employee writes a check to himself. Software automation can help turn good internal controls into great internal controls.
Create a culture of transparency. In small organizations, employees may seem more like family members than business associates or employees. It must be a priority for leadership to create a culture of transparency within the organization. A few key components to creating a transparent culture is to ensure all leaders within the organization are onboard, communicating vital issues to employees on a regular basis, treating employees like adults when delivering bad news and preparing managers to answer tough questions. All employees should be subject to the same checks and balances, despite their title or tenure.
People often steal money over a number of years from a series of small transactions. Headlines talk about the large amounts of money that fraudsters steal from an organization. Many times this is accomplished through a large number of small transactions. This means that it is important to have segregation of duties in place to ensure financial reports, bank and credit statements, expense reports, and any other important financial records are appropriately monitored by several people. Having the right technology available can make this easier for your organization.
Checks and balances are extremely important to ensure that all employees, especially your most trusted employees, have their activity monitored within your accounting technology. Making sure that the security settings are appropriately configured within organizational technology is extremely important during set up and implementation. It is also important to audit these settings periodically, as business processes and internal roles change over the lifecycle of the organization. It is important to ensure that job titles appropriately align with the user rights within all organizational technology.
Offer an anonymous hotline for staff members to report suspicious or unethical behavior. Especially in small organizations, employees may be reluctant to blow the whistle on other employees with whom they have a close relationship. Setting up third-party hotlines and/or e-mail addresses is easy, inexpensive, and could be the most effective option you have when it comes to exposing fraud from your most trusted employees.
For more information on detecting fraud in your organization register for this live webinar, Putting the Tools in Place to Detect and Deter Fraud.