Fraud in Non-Profit Organizations

Introduction

It 's unthinkable that a church member or leader who defraud the church of its finances. Yet, it happens every day. Non-profit institutions are frequent targets of fraud, presumably because the controls on the collection, spending and recording finances are much more casual than the business community. Lax controls lead to others taking advantage of the situation and steal.

Who would do this?

Believe it or not, the average fraudster is a faithful church going individual who sincerely intend to pay back the funds that expropriations 'one day'. Unfortunately, that day never comes, and soon, he got much more than he can ever repay. As a Certified Fraud Examiner, I see stories of ministers, elders, deacons and the recent case of two priests who bilked their dioceses for hundreds of thousands of dollars.

The point is that anyone presented with the opportunity, the perception of 'need' extra cash, can succumb to the temptation to steal. And too often, they do. This happens with churches, institutions financed by government, hospitals and more.

Prevention

The simple answer to the prevention of fraud in a non-profit is the same as the prevention of fraud in a profit for companies, internal controls. Internal control is an accounting term that refers to how an organization is careful with the receipt, deposit and winnings of Finance.

Too often, there are one or two people, (and if two, usually husband and wife) in a non-profit organizations that deal with this task. Usually do so in a closed room by counting the cash and checks, filling out deposit slips and making deposits to the bank.

To have the same person handling all three activities is like taping a bull's-eye on your funds and not-for-profit fraud inviting. There should be a person who counts the cash and checks and notates the totals on paper. A second person should check the totals and fill out the deposit slip, while a third person watches the whole process and put the slip and the cash and checks in the bank bag and locking it.

If there is any problem, there should be a copy of the deposit slip to verify the amounts available with the paper used by the first person to compare with bank statements each month account reconciliation. The third person holds the key to the stock exchange and may or may not deposit itself or to delegate that job to someone you trust quarter.

The prevention on the other end

In any non-profit organization there should be a requirement for two signatures on any check for the funds to get out. Too often, the need is there, but the second petitioner has a stamp that is used to mark his signature in advance for your convenience. Anyone with signing authority on a non-profit bank account should have no connection to the people counting, recording or make deposits. This reduces the possibility that there was a chance to steal.

This is not a balm for all the uses for the prevention of fraud, but it has been found time and again that if a person has a tendency to defraud someone is likely to be captured, they are much less likely to commit fraud itself. Vigilance is the key to fraud prevention, strong internal controls will go a long way toward prevention, but there should be a kind of watchful eye be kept on the finances of each institution whether for profit or not....