Not-for-Profits Often More Vulnerable than For-Profits
Author: Carl F. Jenkins, CPA/ABV, CFE
In recent years, employee fraud has become an increasing problem for not-for-profit entities. Employee fraud consists of theft, embezzlement, cash skimming and other similar offenses. Reasons for the increase in fraud include the poor economy, tightened budgets and reduced staffing, as well as more complex causes such as unemployment rates that have placed pressure on second-income earners and lower salaries and benefits for those working at non-profit organizations.
Not-for-profits are often vulnerable to employee fraud for a few reasons, including a lack of effective internal controls and the fact that these organizations often create and protect a culture of trust.
There are several key risks – warning signs – that may pave the way for fraud in not-for-profit organizations.
Some of the ways that organizations make it easier for dishonest employees to commit fraud include inadequate internal controls (or an ability to override existing internal controls) and a lack of management review or strong company leadership. NFPs also put themselves at risk with relatively low compensation and limits on career advancement.
Taking Precautions to Prevent Fraud
Here are 10 ways that not-for-profits can take precautions against employee fraud and avoid losses:
- Perform background checks on employees
- Maintain current and accurate accounting records
- Ensure your entity’s Chief Executive receive financial statements directly from the bank
- Perform periodic reviews of all internal controls
- Establish a fraud hotline
- Cross-train your workforce
- Secure premises and carry adequate employee-theft insurance
- Perform periodic inventories
- Review computer security
- Create a written fraud policy