Fraud Prevention Tip #28: Seven Tips for Small Business, Small Government and Not for Profits

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. Leaders are waking up to this shortfall in skills and teaching everyone what they need to know to handle fraud challenges. This program does just that – shows participants how to manage their fraud risks in the not-for-profit business environment.

Smaller organizations and many not-for-profits face the inherent risk of insufficient staff and limited control resources. These special challenges require special effort by anti-fraud leaders. Here are seven ideas that will help.

1. Create a written Code of Conduct that addresses routine and non-routine situations staff will encounter in performing their work. Provide examples, short cases and answers to Frequently Asked Questions. Be wary of boilerplate terminology. Focus instead on meaningful real-world guidance for conduct.

2. Due to limitations in staffing and inadequate segregation of duties controls, managers should compensate by spot checking and re-performing the work of subordinates. Make this ‘quality check’ a daily habit.

3. Require that approvers carefully review all disbursement documentation prior to approval. Verify details, ask questions, and when in doubt, choose to doubt and follow up until a valid verifiable conclusion is reached.

4. Have bank account and credit card statements sent unopened directly to the chief executive. This executive should review all statements in detail as soon as they are received.

5. Verify the existence and legitimacy of all first-time payment recipients.

6. Make everyone take uninterrupted vacations or other time away from their jobs. Have other staff fill in for them and complete their work while they are away.

7. You simply must perform meaningful criminal background checks on employees and many volunteers. There’s no easy way around this one. Those terminated for cheating at past employers know they need a new job right now. No delay. And prime targets for new jobs for these folks are the smaller business, governmental entity or not-for-profit that everyone knows has limited resources and staff to check backgrounds.

Comply with the privacy, anti-discrimination and other applicable laws. Get competent legal advice and find a way to get these reviews done! (see Consideration of Arrest and Conviction Records in Employment Decisions for one source of guidance)

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.”