Preventing Fraud

We frequently field calls from organizations that are concerned they are vulnerable to fraud.  Accepting the fact that fraud will happen is a big part of, ideally, preventing it or, more practically, minimizing the damage if it does occur.

Small organizations are vulnerable to fraud for three reasons:

  1. The person responsible for collecting and disbursing funds is also the individual who provides the financial reports.
  2. Many small organizations raise much of their funds in cash. Cash is more easily misappropriated than checks.
  3. Small non- profits are run by trusting and committed individuals. Sadly these individuals tend to be too trusting.

Here are some sadly typical fraud scenarios in the nonprofit environment:

  1. Cash collected at fund raising events is siphoned off by the organization’s treasurer or some other individual with access to cash collections.
  2. The treasurer writes checks to themselves out of the organization’s checking account.
  3. The treasurer makes unauthorized and inappropriate payments to vendors for products and services.