I once worked at a chemical plant. Plants and manufacturing facilities typically have guard gates employees walk through both entering and exiting and all items, such as lunch boxes and purses, are subject to search. An employee of that plant frequently left through the gate with a tarp-covered wheelbarrow.

The guard dutifully checked under the tarp each time, and each time the wheelbarrow was empty. At the retirement party for that employee, as the story goes, the guard commented on the empty wheelbarrows saying he thought the employee was surely taking something out, but the wheelbarrow was always empty. The retiring employee laughed, and said he was stealing wheelbarrows.

While not everyone is interested in stealing wheelbarrows, the 2016 global fraud report, Report to the Nations on Occupational Fraud and Abuse, released by the Association of Certified Fraud Examiners, discovered several notable trends in how fraud is committed and how organizations combat that fraud.

Here are the top fraud schemes, identified in the report:  

Asset misappropriation This is the top category of occupational fraud, which is fraud committed by employees. Within this category, cash is the top missing asset. Skimming, theft of cash on hand, theft of cash receipts, and check tampering are all methods that employees use to misappropriate assets.

Skimming This form of fraud involves taking cash before it’s reported. Cash tickets sales, cash donations, and other cash receipts are easy prey for someone experiencing financial pressures. To protect your cash, require that two or more people be present for cash transactions. If the cash is handed to one person to deposit, keep duplicate reports of the cash count. Have a person not associated with cash transactions perform the bank reconciliation.

Check tampering This is at the top of the list for fraud committed within accounting departments, and is common for nonprofits. Usually committed by a fraudster who is involved in reconciling the bank statements, the person tampering with checks uses his or her authority to hide the existence of the fraud by altering accounting systems or bank statements. Check tampering is frequently not a one-time event, but continues over time.

Employees can forge signatures and endorsements, or alter the payee on checks. Signs that check tampering is occurring are missing check numbers on reports, returned checks with obviously altered signatures or payees, and complaints from customers whose payments have been misapplied to accounts. Also watch for checks payable to employees outside normal payroll checks.

A True Story

In the story behind this headline, Trusted assistant steals $365,000, the organization hired its first CFO whose first task was to begin an internal audit of the organization. The CFO quickly discovered 171 missing checks associated with the accounts in the assistant’s care.

The new CFO also found signs that the bank reconciliation was altered, as well. Because the check signer was frequently out of town, signed, blank checks were left with the assistant. Ultimately, the CFO reported the employee to the board, and the assistant was charged with fraud.

What This Means to You

Implementing policies that increase the likelihood of detecting fraud is a pillar of prevention.

  1. Review internal controls to be sure cash functions are performed by separate people.
  2. Routinely perform account analysis, using bank statements. Review actual cleared checks, even if they’re just bank scans.
  3. Never allow checks to be pre-signed.
  4. Use bank-assisted controls, such as positive pay.
  5. Ensure check printing is never done by someone with signing privileges.

Fraud can be devastating to nonprofit organizations. An anti-fraud culture starts at the top. Managers should let employees know there is a zero-tolerance environment for stealing. Don’t override policies and don’t be too trusting. Enforce consequences for perpetrators. Remember that a strong possibility of being caught is often deterrence enough for would-be fraudsters.

To learn more about preventing nonprofit fraud, to surviving the aftermath, to every protocol, process, and best practice in between, download, “The Fact of the Matter: Nonprofit Fraud Guide.” You can also listen in as our “Fact of the Matter: Nonprofit Fraud”
authors and nonprofit fraud experts discuss how organizations can better prepare for and prevent the possibility of fraud, as well as how to spot the signs before it’s too late.