Another holiday season is just around the corner. For many nonprofits, the holidays represent the season of giving, the season of fundraising, and unfortunately, a peak time for fraud.
It’s important to remember that employees and volunteers for nonprofit organizations are not immune to financial temptations caused by financial stress, family pressures, gambling and other addictive behaviors. Nonprofits have reported hundreds of millions of dollars in losses attributed to theft, fraud, embezzlement, and other unauthorized use of assets over the years. According to the 2014 Report to the Nation on Occupational Fraud and Abuse (which includes for-profits) by the Association of Certified Fraud Examiners (ACFE):
- The typical organization loses 5 percent of their revenue to fraud every year.
- Financial statement fraud causes the biggest financial impact, with a median loss of $1 million.
- Asset misappropriation schemes made up 87 percent of reported cases.
- Reported frauds last approximately 18 months before detection.
Financial loss is only the beginning. These incidents also damage organizational morale, and public image, making it even harder to raise funds in the future.
Seven loss prevention tips:
- Establish a strong compliance program that includes a written code of ethics, regular training, and real consequences for violations. Conduct periodic audits of your program to keep it effective.
- Conduct thorough background and credit checks on all prospective employees and volunteers, and watch for undisclosed criminal records, prior instances of fraud, or debt problems.
- Require multiple layers of approval including double signatures on checks over a certain amount, authorizations for credit card purchases, and back-up documentation of expenses.
- Segregate duties. Have more than one employee or volunteer handle the receiving, depositing, recording, reconciling, and disbursement of funds.
- Don’t discourage whistleblowers. Everyone in the organization has a responsibility to protect the organization, so provide an anonymous way of reporting suspected wrongdoing.
- Keep track of your stuff by conducting a fixed asset inventory at least annually.
- Report and pursue all instances of fraud. It can be difficult to do, but if you don’t report the fraud, press charges, and try to recover the funds, you’re cheating those you serve. Besides, your insurance coverage could depend on it.
Budgets are tight, resources are strained, and in many states, minimum wage is on the rise. Your organization needs every cent so it’s important that you contain any cash flow leakage due to fraud or preventable losses.
Proactive risk management and custom-fit insurance protection are essential nonprofit assets. Higginbotham Insurance offers a wide range of nonprofit insurance products and services to help protect your organization while you continue your vital mission this holiday season.