The Boston Globe reported early in 2018 that “Employee theft is ‘shockingly common’ at nonprofits.” According to Gerry Zack, the incoming chief executive of the Society of Corporate Compliance and Ethics in Minneapolis as quoted in the Boston Globe, fraud in the non-profit world is “ shockingly common.”
What can a small, cash-strapped, non-profit organization do to stymie theft in their organization?
Actually, there is a lot management can do to reduce the likelihood of financial fraud.
Get help from the Board. The governing boards of most small and medium non-profit organizations are composed of community volunteers who typically lack financial management expertise and don’t have a lot of time to spare. However, if you approach them with very specific, easy to follow tasks I am sure they will be happy to help.
And here is how: You and the Board can develop an easy to follow, low or no cost approach to enhance the “risk” environment of your organization and reduce the probability of fraud.
Following are some common sense, low cost controls you and your Board can implement:
Accountability Unlike their for-profit cousins, members and donors of non-for-profit organizations seldom expect to receive goods or services in exchange for their donations. Because there is no direct exchange of goods for cash, accountability becomes a little bit fuzzier. Donors expect their donations to further the social mission of the organization, a goal that is more difficult to measure at the time of the exchange.
What to do? Members, donors and the governing board should insist in receiving financial reports from management on a periodic basis (at least every three months) and they should read them and question items that just don’t look right.
Distribute the work One key administrative control in any organization is “segregation of duties.” Make sure that he who has access to money does not also have access to records (i.e. no one should write checks and also be responsible for recording the expenses and reconciling the bank statements).
This is often hard to achieve in small non-profit organizations because the very limited number of employees it can afford to hire.
What to do? Get volunteers to help you out with very specific, limited tasks such as writing the checks once a week and presenting them to the Executive Director for signature. Let the full time bookkeeper record the transactions but make sure he/she has no access to the physical checks or cash.
Be aware of your surroundings Most fraudulent behavior is easy to detect except we are neither aware nor conscious of the possibility of fraud. A small staff becomes like the family away from home and trust develops naturally and loyalty to the organization is taken for granted.
What to do? Be curious of erratic behavior by the staff or conspicuous consumption beyond their means. Most offenders get away with fraud because their peers and bosses do not bother to look.
Insist on vacations being taken by everybody every year According to Jonathan Middup a partner at Ernest and Young as quoted in Big4Blog (www.big4.com) “The profile of a typical fraudster is a long serving, trusted employee, who works long hours and is reluctant to take their annual leave. Without doubt, one of the most simple and cost-effective anti-fraud measures is to ensure employees take at least two consecutive weeks holiday.”
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