What's the best way to understand controls in the real world. Fraud cases where controls failed. Who are the only people that can steal you blind? People you trust. RESULT: Trust is NOT a Control. President Reagan: Trust but Verify.

1. Assessing Control Risks
for a Nonprofit
Gary Zeune, CPA
10356 Wellington Blvd., Suite D
Powell, OH 43065
614-761-8911
gzfraud@TheProsAndTheCons.com
www.TheProsAndTheCons.com
v9

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These materials were developed by Gary D. Zeune.
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were not developed for self study or reference uses. These materials
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education. They are distributed with the understanding that Gary Zeune is not engaged
in rendering legal, accounting, or other professional services. If legal advice or other
expert assistance is required, the services of a competent professional should be
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4. The information the participant should keep on each program is (a) sponsor's name, (b)
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©Gary Zeune CPA 2

3. Taking Notes in Acrobat or Reader
Text box
Highlighter
Free form ‘pencil’
OR
Write. Not Type. = Remember 3x more.
©Gary Zeune CPA 3

4. Home page
53 Articles 200+ Videos
©Gary Zeune CPA
Use in mgt letter
and funding request.
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5. Today’s Agenda
1. Assessing risk
2. NPO Risk Environment
3. Baptist Foundation of Arizona
4. National Lumber Dealers Association
5. Mississippi College
6. Donna Renee Gamble
7. Purchasing cards
8. National School Fitness Foundation
9. Fraud in Restricted Donations
10. Ohio Cancer Society Theft
©Gary Zeune CPA 5

6. Assessing Risks
©Gary Zeune CPA 6
There are thousands of
risks for hundreds of
thousands of businesses,
non-profits and government
entities that constantly change
thus a comprehensive list is not
possible so we’ll use examples
to illustrate the process of
recognizing and assessing risk.

7. Creating Risk of Control Failure
RISK: Doing the same
thing over and over
CONTROL: Don’t do more work,
but do it __________
©Gary Zeune CPA 7

8. How People Avoid Controls
Do you change your behavior to
_____________________
©Gary Zeune CPA 8

9. Understanding the Entity
and Its Environment AU-314
21 Understanding the entity and its environment consists of….
a. Industry, regulatory, and other external factors
b. Nature of the entity
c. Objectives and strategies and related business risks
d. Measurement and review of financial performance
e. Internal controls
©Gary Zeune CPA 9

10. Understanding the Entity
and Its Environment AU-314
24 Industry, Regulatory and Other External Factors including …..
Competitive environment
Supplier and customer relationships
Technological developments
Regulatory environment
Accounting, legal, political and environmental issues
25 Risk of the industry
©Gary Zeune CPA 10

11. Nonprofit
Fraud and
Abuse
©Gary Zeune CPA 11

12. NPO Environment
©Gary Zeune CPA 12

13. Types of NPOs at Risk
1. Churches
2. Homeless shelters
3. Social service agencies
4. Health care organizations
5. Amateur sports groups
6. Disaster relief organizations
7. Museums and zoos
8. Performing arts groups
9. Labor unions
10. Trade and professional organizations
Who’s at risk???
©Gary Zeune CPA 13

14. Management Oversight + Behavior
1. Tone at the top
2. Financial analysis and budgeting
3. Communications
4. Board oversight
5. Integrity and ethics
6. Comply with organization policies
©Gary Zeune CPA 14

15. Baptist Foundation of Arizona
1. Largest non-profit bankruptcy in history
1. 13,000 investors
2. $590 million
2. Promised elderly churchgoers
above-market returns and good deeds
3. GC Grabinski 6 years for fraud +
5 years for illegal enterprise
4. CEO Crotts 8 years for fraud + 7 for illegal enterprise
5. 6 others in prison
GC CEO
©Gary Zeune CPA 15

16. Baptist Foundation of Arizona
1. Auditors _________________________
2. Investors recovered $405 million including $217 million
from auditors
3. PIC Henry ‘retired’
4. Ozer lost his ______
5. AA received signed ALO confirmation
TIP: A signed confirmation does NOT means
it’s __________________
Watch Baptist Foundation of Arizona on our website
Jay Ozer
Jack Henry
BFA+Sentencing
©Gary Zeune CPA 16

17. National Lumber and Building
Material Dealers Association
1. Office manager and bookkeeper
2. New Life Business Management and Development Association
checking account ________________
3. Fundraising for new headquarters
4. Couldn’t produce financial statements so ________
5. Donor noticed he wasn’t listed NLBMDA ________
6. Took $110,000 and sentenced to 25 months
©Gary Zeune CPA 17

18. 3 Ways to Demonstrate You Understand
the Entity, Environment and the Industry
1. Industry newsletter
2. Client/customer online info
3. Google Alerts for…
1. Client and Executives
2. Major customers and Suppliers
3. Products and services
4. Major taxpayers and donors
5. Competitors
RISK: How do you explain not knowing something that’s a
fraud risk that’s ______________________
©Gary Zeune CPA 18

19. Google Alerts
©Gary Zeune CPA 19

20. 5 Shocks That Cause Fraud
1. National Recession
2. Regional State
3. Local City
4. Entity Entity
5. Personal Bookkeeper
©Gary Zeune CPA 20

21. Taking Out the Christmas Tree
Fraud Tip:
Anytime you
change a ‘system’,
people will
ALWAYS change
their _________.
©Gary Zeune CPA 21

22. Mississippi
College
1. Lewis Nobles Pres for 25 years, stole 15 years
2. Personally collected checks
3. Checking account in name of college
4. $3 million in donations
5. School of Nursing, School of Law, a FM radio station
6. "He was Mississippi College. He did everything--he had full and
complete and absolute power." Charles Willibanks, law school
faculty, 1977 to 1981.
7. 1 of 18 most effective US college presidents in 1986
©Gary Zeune CPA 22

23. Mississippi
College
1. Trustees demanded proof expenditures were legit
2. Typed on photocopy of real bank statement
3. Mail fraud, tax evasion and money laundering
4. Fled to San Fran, cyanide
5. Sentence 7+ years
6. Stock and brokerage fees, real estate, large credit card
accounts and lavish purchases for himself and women friends
7. Detected when a fundraiser approached a donor who had
already _______
©Gary Zeune CPA 23

24. Credit Card Abuses
1. Anyone can have one
2. No credit checks on employees
3. Credit limits based on reasonable need
4. Locked up until needed
5. Card holders acknowledge rules and responsibility
6. Prompt review of statements
7. Submit supporting charge slips or pay personally
8. Quickly suspend or revoke if abused
Fraud Tip: Use purchasing cards instead of credit cards
©Gary Zeune CPA 24

25. Purchasing Card Features
1. Single transaction limit
2. Monthly dollar limit
3. Finance office/Budget $ limit
4. Merchant blocking
5. Daily transaction limit
6. Monthly transaction limit
7. Total company limit
8. Can be different to each cardholder
©Gary Zeune CPA 25

26. Donna Renee Gamble
1. Georgia Tech P-Card
2. Pleads guilty 22 counts $316,000
3. Number of personal items __________
4. NSF grant funds
5. Fake invoices
6. Supervisor ______________
Tip: How was she caught _____________________
Donna Renee
Gamble steals
$300k using her
purchasing card
©Gary Zeune CPA 26

27. Some of the Things Gamble Bought……
1. Barrington Model 801 oboe
2. Philips 32-inch, widescreen
LCD HD TV
3. Sylvania 20-inch, flat panel
LCD TV with built-in DVD
player
4. Axion 20-inch, flat panel TV
5. Bunn ULTRA-2 frozen drink
system
6. Crosley mini bubble jukebox
7. Voit competition soccer
foosball table game
8. Makita 2800-watt generator
9. Honda pressure washer
10. Coleman Gas Log patio hearth
11. Centurion Euro-style boat
cover
12. 4 Lafuma RSX La Napoule
recliner lounge chairs
13. Huffy women's comfort bicycle
14. 2 Kulana Luhi women's cruiser
bicycles
15. 4 digital cameras
16. Yamaha WaveRunner III
©Gary Zeune CPA 27

28. P-Card Better Internal Controls
1. Strengthen spending controls
2. Solves timing problems
3. Manage by exception
4. Don’t need manual logs
5. MROs usually occur over 2 accounting periods
6. Don’t reconcile POs issued and liabilities
7. Avoid side agreements
©Gary Zeune CPA 28

29. Credit or P-Card Code of Conduct
1. Criteria for issuance
2. Initial and annual credit checks
3. Position of trust
4. Used for business (with examples)
5. Never used for personal expenses or cash
6. Maintain physical control
7. Procedures for lost cards
©Gary Zeune CPA 29

30. Credit or P-Card Code of Conduct
8. Spending limit by card
9. Types / amounts needing prior approval
10. Submit charge slips within ____ days [you decide]
11. Report disputed charges within ___ days [you decide]
12. Procedures to request increase in limit
13. Acknowledge violations of card policy violates code of conduct
and is grounds for revocation, firing or prosecution
14. In writing and signed annually
©Gary Zeune CPA 30

31. National School Fitness Foundation
1. LIFT America FREE fitness equip
2. Eliminate school obesity
3. LOTS of positive press
4. Wisc Gov Jim Doyle included NSFF in his
state of state announcing $5 million
contribution
5. Minn 19 schools $7+ million
6. Utah 130+ schools
American Fork High football
players work out on equipment
purchased from the National
School Fitness Foundation, which
filed for bankruptcy last month.
Jason Olson, Desert Morning News
©Gary Zeune CPA 31

32. NSFF Structure
Loan
Pay for equip all up front
Monthly “contribution”
Monthly
payment
BANK
IBM
HP
Microsoft
©Gary Zeune CPA 32

33. NSFF…..Questions
1. CEO Cameron J. Lewis, 36, got 17 years
2. Chairman father J. Tyron Lewis, 65, got 5+ years
3. CFO Marion H. Markle pleaded guilty and cooperated
4. Did anyone check with __________________???
5. Did NSFF management know that what it was doing is
______________???
©Gary Zeune CPA 33

34. Donor Restrictions
What are you doing to
determine if your nonprofit
or client is
______________________
READ: Are You Misappropriating Your Nonprofit’s
Funds?
©Gary Zeune CPA 34

35. Wire Transfer Fraud
CFO Daniel S. Wiant sentenced to 15 years
for stealing $7.8 million from the Ohio
Chapter of the American Cancer Society
TIP: Just because accounts have passwords does NOT mean
they are __________________
©Gary Zeune CPA 35