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Detecting and Preventing Fraud in Nonprofits

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Title: Detecting and Preventing Fraud in Nonprofits


1
Detecting and Preventing Fraud in Nonprofits
2
  • Detecting and Preventing Fraud in Nonprofits
  • Presented By
  • W. Andrew Powell, CPA
  • Principal
  • Halt, Buzas Powell, Ltd.

3
Our Objectives for Today
  • Increase understanding of the types of fraud an
    organization may be most susceptible to
  • Improve awareness of the importance and
    application of an organization wide approach to
    protecting against fraud and abuse
  • What things your organization can implement to
    protect against fraud and abuse

4
Definition
  • Websters dictionary
  • The Association of Internal Auditors

5
Type of Fraud
  • Occupational
  • Definition use of ones occupation for personal
    enrichment through the deliberate misuse or
    misapplication of the employing organizations
    resources or assets
  • Categories of occupational fraud
  • Asset misappropriations
  • Corruption
  • Fraudulent statements

6
ACFE
  • Association of Certified Fraud Examiners (ACFE)
  • Every two years issues a Report to the Nation
    dealing with Occupational Fraud
  • The 2006 results are from a study of data from
    1,134 cases of fraud

7
2006 ACFE Report to the Nation
  • 147 Cases involving NFPs, schemes included

8
2006 ACFE Report to the Nation
  • How fraud was detected

9
2006 ACFE Report to the Nation
  • What type of anti-fraud measures existed in the
    organizations

10
2006 ACFE Report to the Nation
  • Of all the 1,134 cases in the 2006 study
  • 23.4 resulted in 25 or less in recovery amount
  • 18.1 resulted in 26 to 75 of recovery amount
  • 16.4 resulted in 100 of recovery amount
  • 42.1 resulted in no recovery

11
Factors Present in All Frauds
  • Opportunity
  • Intent
  • Motive
  • Concealment
  • Rationalization

12
Why is an Organization Susceptible to Fraud
  • Financial condition of the organization
  • Pressure to present results for funders and
    general public
  • Internal accounting controls
  • Integrity level of corporate leaders and
    employees
  • Commitment to organizations value system
  • Reward systems for ethical behavior

13
Why is an Organization Susceptible to Fraud
(contd)
  • Personal traits and characteristics of executives
    and employees
  • Organizational culture and dynamics
  • Peer pressure
  • Perception of detection
  • Swiftness, certainty, and severity of punishment

14
Other Types/Forms of Fraud
  • Types
  • Investment scams
  • Vendor
  • Customer
  • Forms
  • Theft of intellectual property
  • Check and credit card fraud
  • Money laundering
  • Computer and internet
  • Contract and procurement
  • Identity theft

15
Characteristics that Open up a NFP to Fraud
  • Environment of trust
  • Excessive control by founder, exec director,
    major contributor
  • Board of Directors lacking financial expertise
  • Existence of nonreciprocal transactions
  • Lack of resources for financial management
  • Job security linked to program and financial
    reporting (especially an org with govt grants)

16
Types of Fraud in NFPs
  • Ghost employees
  • Sub recipient fraud
  • Expense reimbursements
  • Skimming of charitable contributions
  • Financial assistance
  • Founder/leader syndrome
  • Fundraising

17
Cost of Fraud to NFP
  • Reputation impact
  • Program management
  • Personnel recruitment
  • Fundraising
  • Overall image
  • Employee morale
  • Actual loss of assets or resources
  • Insurance coverage
  • Investigative and prosecution costs
  • Corrective action

18
How does a NFP Cope
  • Acknowledge that fraud and abuse is an
    organization issue
  • Establish a practice of periodic risk management
    as it relates to fraud and abuse
  • Develop an organizational model for controlling
    fraud and abuse

19
How does a NFP Cope
  • Organizational facts
  • Everyone in the organization has a role in
    detection and prevention
  • Traditional internal accounting controls play a
    role
  • Primary reliance on the external audit is not
    enough

20
How does a NFP Cope
  • Organizational facts (cont.)
  • People and circumstance change over time, which
    may increase the risk
  • The real cost, once discovered, can not be
    measured in terms of dollars
  • A probability exists that some level of fraud or
    abuse may already exist or could happen in the
    near future

21
How does a NFP Cope
  • Risk management activities
  • Assessment
  • Reduction
  • Transfer
  • Acceptance

22
How does a NFP Cope
  • Organizational model for controlling fraud
  • Establish appropriate financial controls as
    related to opportunities to commit fraud
  • Establish non-financial systems to deal with
    fraud risk factors
  • Establish a tone at the top relating to fraud

23
Other
  • Experiences to share
  • Additional comments

24
Questions?
  • W. Andrew Powell, CPA
  • Principal
  • Halt, Buzas Powell, Ltd.
  • (703) 836-1350
  • apowell_at_cpas4you.com
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