Spring 2015 issue of Horizons

NOT-FOR-PROFIT

Combating Fraud in a Not-For-Profit Organization by Christina Solomon, CPA, CFE, CFF

A ll organizations are vulnerable to employee fraud. However, when a fraud occurs, organizations often struggle to come to terms with the violation of trust and disregard for the stated mission by one of their own. A practical approach, as outlined below, will help ensure that your not-for-profit organization is carefully identifying and managing its fraud risks. Acknowledge Fraud Is Pervasive Examples of fraud in the workplace are not hard to find. In fact, the eighth National Business Ethics Survey (NBES) reports that although workplace misconduct has been steadily declining, more than 40% of workers surveyed indicate they observed misconduct on the job.

Understand the Cost of Fraud The financial cost of fraud is significant. The Association of Certified Fraud Examiners (ACFE) estimates that organizations lose 5% of their annual revenues to fraud. According to the ACFE’s 2014 global fraud study, the median loss for a not-for-profit organization is $108,000 per fraud incident. Perhaps even more harmful to an organization than the cost of the fraud itself, are the direct and indirect repercussions following a fraud. Not-for-profit organizations face increased scrutiny, negative publicity and reputational harm when their names are associated with the word “fraud.” Additionally, the efforts and funds expended to investigate and remediate the fraud often disrupt business operations and fracture strategic objectives.

page 46 | horizons Spring 2015