It seems like a far-fetched theory – who would want to steal from nonprofit organizations, which are tasked to help individuals and groups involved in a host of worthy causes? However, fraud does happen at charities, and more often than you would expect, and nonprofit executives and board members need to know what to do to stop criminals in their tracks.
In the four years between 2008 and 2012, more than 1,000 charities in the United States reported losses of at least $250,000 due to theft, fraud or embezzlement.
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How can nonprofits best prevent and avoid fraud? Here are some suggestions:
Keep a close eye on people
Executives need to learn to recognize the warning signs. People who commit fraud tend to have a number of similar characteristics, like living beyond their means, having an overly close relationship with either vendors or donors, refusing to allow others to help them with some job functions, and working extra hours and seldom (if ever) taking vacation time.
Be more organized
A great way to identify wrongdoers is to be more organized. Separate duties between employees so that managers make sure everyone’s doing their jobs as they should. Holding external and internal audits is also a smart idea. Moreover, there should be a safe and confidential way for whistleblowers to report suspicious activity with no repercussions.
Switch things around
By having all your staff cross-train for other positions, you can sometimes move people to other tasks, which would reveal discrepancies and even deter would-be fraudsters. Simply enforcing regular password changes for everyone and limiting access to certain information should be routine.
Fall back on technology
There are many technological strategies leaders can implement in-house to help keep criminals out of the system. For instance, some databases and other repositories have permission-based security settings. On top of that, encryption and data masking is crucial for almost any company. Finally, administrators should consider setting up automated alerts that signal fraud could be taking place – like forged checks, modified vendor data and so on. Relying on secure accounting software from day one is also a smart move.
With the right work practices, safeguards and technology solutions, you can prevent fraud or embezzlement from taking place at your nonprofit.