Is your nonprofit at risk for fraudulent financial activity? Nonprofit organizations tend to be more trusting of their employees, have less resources devoted to administrative costs, and have less stringent financial controls than for-profit organizations. They are more likely to be victims of such fraud.
According to a 2013 Washington Post report, more than 1,000 nonprofit organizations disclosed hundreds of millions in losses attributed to theft, fraud, embezzlement, and other unauthorized uses of funds and organizational assets, from 2008 to 2012. Nonprofits were second only to the financial services industry, experiencing one-sixth of all major embezzlements. In one recent example, a California CPA reportedly stole $4 million while managing a church’s books for nearly seven years. He is now headed to prison.
How can nonprofits reduce their risk of fraud? A key answer is internal financial controls, and other options can provide valuable safeguards too.