Fraud Prevention for Small Organizations

Peter looked at me across the conference table and asked the most important question of the meeting: “How can we prevent this from happening again?” As the executive in charge of a $2 million not-for-profit, he was hit hard by the theft. Never had he suspected hat his trusted bookkeeper would steal – especially with the community-focused mission of the organization. But Peter also understood that he simply couldn’t expect to prevent all wrongdoing, especially with tight budget limits for staffing and resulting inadequate formal controls.

Fraud Issues & Answers for Not-for-Profit Organizations | The not-for-profit business environment has many unique fraud risks – including fund raising pressures, proper use of donated funds and government grants, the need to report positive program results, and plain old theft and abuse. The need to balance a mission focus, public scrutiny, inherent trust, and limited staffing all combine to create exposures to wrongdoing that demand vigilance. As a result, many not-for-profit Board members, managers and staff are finding they simply don’t have the skills (or time!) necessary to fulfill these responsibilities.

So we turned our attention to deterrence rather than pure prevention. Here’s one of the suggestions I encouraged Peter to act on without delay:

Clearly State Your Fraud Risk Management Expectations

Visible, vocal leadership is a must in any organization, but is especially important in smaller businesses, not-for-profits and governmental units. Leaders have to put a stake in the ground and once and for all tell people what is expected. Here are the important talking points for that discussion. Use them as a script if necessary.

• Every organization has the risk of misconduct, wrongdoing and fraud. We need everyone’s help to fight this problem.
• Each manager and employee should know what could go wrong in their areas of responsibility. A general knowledge of business fraud risks must be supplemented with a detailed understanding of what could go wrong on my watch.
• Do your best to prevent it from happening in transactions you process, review or approve. Don’t give your signature away; within reason be sure to check details. A simple mantra before approving anything is, “When in doubt, DOUBT!”
• Catch problems early. It’s unreasonable to expect that every detail will be checked every day. But all details should be spot checked as part of any business quality initiative. Just partner your anti-fraud efforts to the existing culture of doing things right! Anti-fraud isn’t extra work; it’s core work.
• Speak up when you suspect something doesn’t look right. Staff should be assured that they are not alone. They should be encouraged to ask for help when they suspect something isn’t right.

Why not say these five things to your team the next time you have everyone together for a meeting. Even in the smallest organizations, effective Fraud Risk Management relies heavily on recruiting your entire employee and management team to know what can go wrong where they work, to double-check details before approving documents, and to speak up when something looks odd, strange or curious. Let me know if I can help.

John J. Hall, CPA

John J. Hall, CPA, is an author, speaker and results expert who presents around the world at conventions, corporate meetings and association events. Throughout his 35-year career as a business consultant, corporate executive and professional speaker, John has helped organizations and individuals achieve measurable results. He inspires audience members in corporations, not-for-profit organizations and professional associations to step up, take action and “do what you can.”