What Tools Are In Your Anti-Fraud Toolbox?
In an effort to protect your organization’s ability to operate consistently and efficiently, you’ve likely trained yourself to always be on the lookout for anything that could potentially harm your organization. And as much as we would like to think we have a pretty good handle on what’s going on right under our nose, for one reason or another, if you’re not explicitly looking for them, some of the red flags can be really hard to spot. This is particularly true when it comes to identifying fraud and minimizing its impact on your not-for-profit organization.
According to the Report To The Nations On Occupational Fraud And Abuse, the Association of Certified Fraud Examiner’s recent global fraud study, smaller organizations were, for the most part, less likely to implement anti-fraud controls than their larger counterparts.
“This gap in fraud prevention and detection coverage,” the report states, “leaves small organizations extremely susceptible to frauds that can cause significant damage to their limited resources.”
The median loss suffered by organizations with fewer than 100 employees was the same as losses incurred by organizations with more than 10,000 employees. However, researchers have concluded that instances of fraud are likely to do more harm to smaller organizations because they don’t have the resources available to rebound as quickly or at all, smaller organizations tend to hurt more deeply when fraud occurs.
How To Protect Your Nonprofit From Fraudulent Activity
Generally speaking, if you know what you’re looking for, there are ways to determine if fraud is occurring.
- Track your bank reconciliations: If this process isn’t completed on a regular and timely basis, it could be because fraudulent activity is occurring. You might also be at risk if only one person is managing your organization’s finances. It’s important to have someone other than the person writing checks and making deposits handle bank reconciliation activities. With more eyes on the finances, there is less opportunity for money to go missing.
- The more eyes the better: Sometimes employees will target a nonprofit’s funds by intercepting and altering a check from the organization’s bank accounts. Not having oversight in this area makes it easy for fraudulent spending.
- Check for missing inventory items: Do you secure your inventory items? If not, you might discover that things are likely to grow legs and walk away … figuratively speaking, of course. If you don’t already, be sure to secure all inventory items to prevent theft.
- Get in the know: It also helps to realize that, if fraud is occurring in your organization, the person or people responsible are likely justifying their actions as a result of their personal circumstances. One way to protect your nonprofit is to get to know your team members. In doing so, you’ll be more inclined to notice when something is out of the ordinary.
Put The Right Tools In Place To Combat Fraud
Regardless of how hard you try there is always a chance that fraud is occurring (or will occur) inside your organization. But studies continue to show that the more fraud prevention measures are in place, the more likely you are to deter fraud and the more likely fraud is to be detected. The following are a few effective fraud prevention tools/initiatives:
- Set up an anonymous fraud reporting hotline: A good hotline, like Red Flag Reporting, can help a nonprofit fight against fraud, unethical behavior and encourage fairness throughout the organization.
- Leadership must set the tone: Treating individuals fairly and solving problems sends a strong message about what activities are acceptable and those that are not. Setting a strong and consistent tone at the top sets an example for how employees should act throughout the organization.
- Implement whistle blower and conflict of interest policies: Encourage employees and others to come forward with any concerns about the organization and how it’s operating. These policies are meant give employees and others a safe way to report behaviors that they believe are detrimental to the organization.
- Have a consistent review of adjusting journal entries posted: Journal entries are one of the easiest ways individuals can make fraudulent transactions because there are less oversight and controls regarding this work. That said, it’s important to review all entries (regardless of their size) because this is your most vulnerable area to fraud.
- Make sure your policies and procedures are up-to-date with annual reviews: Keeping your policies and procedures updated keeps your nonprofit aligned with the current regulations and protects it from new dangers.
Make Fraud Prevention A Priority
Don’t let fraud destroy your nonprofit. If you don’t have the proper controls in place, you should start an implementation plan today. If you need help or have any further questions, email Rea & Associates. Our team of nonprofit specialists are happy to talk to you about ways to protect your organization.
By Annie Yoder, CPA, CFF, CFE (New Philadelphia office)