October 31, 2013
An unfortunate side effect of the good will of nonprofits is that they are often the targets of fraud and theft. Their business operations may even invite it, according to Nonprofit Quarterly. Relying heavily on volunteers and built on foundations of trust, many organizations lack the departments and expertise that could prevent illegal behavior. Some do not recognize the problem exists, and others lack the staff to monitor it.
Nonprofits are easy targets for fraud
A nonprofit desperately in need of assistance and short on full-time staff may fail to properly vet potential volunteers. Likewise, under-skilled employees in financial departments may not recognize signs of fraud or theft, allowing crimes to continue long after many businesses would have noticed. NPQ cites a 2005 report by the Association of Certified Fraud Examiners that found payroll and check tampering were more common in the nonprofit sector than the business sector.
Fraud against nonprofits can come in many forms and inflict various amounts of damage. NPQ reported a scam in August in which nonprofits and small businesses in Michigan received bogus bills for $125 to prepare corporate records for the state. To a savvy accountant, such a request may raise suspicion immediately. However, at an organization where the employee cutting checks may just be a hard worker wearing many hats, the bill could be paid with no questions asked. A single scam phishing $125 may not damage an organization irreparably, but after succeeding once, the perpetrators will come back for more.
Financial services are available to prevent fraud
For some organizations, fraud prevention is another tool that may be available under a larger financial services plan. First Nonprofit Companies offers financial operations consulting services that help organizations in a number of ways, including building fraud-deterrence strategies. First Nonprofit can also help employ fraud prevention audits and to help establish potential risks.
Nonprofits can avoid other financial pitfalls with the help of experts by advancing financial capability, preparing a comprehensive plan and evaluating fundraising sources. By saving money and improving operations in these other areas, organizations will have more resources to prevent fraud or theft. While it is impossible to protect against forms of fraud or risk, securing the services of financial experts can go a long way toward defending an organization that is viewed by fraudsters as a vulnerable target.
Content presented by First Nonprofit Group, a leading provider of financial consulting services for 501(c)(3) nonprofit employers.
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