Fraud in Nonprofits
Posted on Wednesday, March 08, 2017
Limited staff and tight budgets make nonprofit organizations prime targets of fraud; however, often nonprofit management believes “it won’t happen to our organization” or “Jane is the most dedicated and honest person I’ve ever met. She’d never commit fraud.” These are myths that can negatively affect management’s decisions in addressing the prevention of fraud within its organization. Fraud can and does happen in both for profit and nonprofit organizations.
The Association of Certified Fraud Examiners (ACFE) performed an analysis of 2,410 cases of occupational fraud from January 2014 through October 2015. The frauds took place in 114 different countries throughout the world. The ACFE’s 2016 Report to the Nations, which summarizes the results of the study, noted that the typical organization loses 5% of revenue in a given year as a result of fraud. Some other interesting fraud statistics noted in the study were the following.
- There was $6.3 billion in total losses; 23% of the cases caused losses of $1 million or more with the median loss per case of $150,000
- The median loss suffered by small organizations (fewer than 100 employees) was the same as that incurred by the largest organizations (more than 10,000 employees). However, this type of loss is likely to have a much greater impact on smaller organizations.
- Organizations of different sizes have different fraud risks. Corruption was more prevalent in larger organizations, while check tampering, skimming, payroll and cash larceny schemes were twice as common in small organizations as in larger organizations.
- The most prominent organizational weakness that contributed to the frauds in the study was lack of internal controls, which was cited in 29.3% of cases, followed by an override of existing internal controls, which contributed to just over 20% of cases.
- In 40.7% of cases, the victim organizations decided not to refer their fraud cases to law enforcement, with the fear of bad publicity being the most-cited reason.
Now that you know that fraud can and does happen in nonprofit organizations, continue to follow DWD’s Mission Minded blog to find out ways that you can deter fraud from happening in your organization.
To read the entire 2016 Report to the Nations, visit the ACFE’s website.
Posted by: Carrie Minnich, CPA
Posted in Mission Minded Nonprofits
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