Fraud Prevention for Nonprofits: Avoiding Fraud Schemes and Fraudsters
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This presentation explains how you can prevent and deter fraud in your nonprofit organization, why some employees commit fraud and how to spot behavioral "red flags," what to do if you discover fraud in your organization, and common fraud schemes to watch for.
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Fraud Prevention for Nonprofits: Avoiding Fraud Schemes and Fraudsters
- 1. Fraud Prevention for Nonprofits: Avoiding Fraud Schemes and Fraudsters Richard Wolf, CPA, CGMA, CFE
- 2. Introductions • CPA, CGMA, CFE • Principal at Gross Mendelsohn • 19 years of public accounting experience in the nonprofit sector
- 3. Today You’ll Learn • Why nonprofit fraud education matters • Common fraud schemes in nonprofits • Why some employees commit fraud • General fraud prevention and deterrence • What to do if an issue is discovered
- 4. WHY NONPROFIT FRAUD EDUCATION MATTERS
- 9. Form 990 – Return of Organization Exempt from Income Tax
- 10. Nonprofits must explain the nature of a diversion of assets.
- 13. Type of Victim Organization
- 14. Type of Victim Organization
- 15. Size of Victim Organization
- 16. Size of Victim Organization
- 19. Control Weaknesses That Contributed to Fraud
- 23. COMMON FRAUD SCHEMES IN NONPROFITS
- 24. Billing Schemes False invoicing via shell companies False invoicing via non-accomplice vendors Personal purchases with company funds
- 25. Billing Schemes False invoicing via shell companies False invoicing via non-accomplice vendors Personal purchases with company funds
- 26. Billing Schemes False invoicing via shell companies False invoicing via non-accomplice vendors Personal purchases with company funds
- 27. Billing Schemes False invoicing via shell companies False invoicing via non-accomplice vendors Personal purchases with company funds
- 28. Red Flags for Billing Schemes
- 29. Detection of Billing Schemes
- 30. Fraud Prevention: Billing Schemes • Review vendor list • Approval by multiple employees • Analyze vendor purchase
- 31. Types of Check Tampering Forged maker Forged endorsement Altered payee Authorized maker
- 32. Types of Check Tampering Forged maker Forged endorsement Altered payee Authorized maker
- 33. Types of Check Tampering Forged maker Forged endorsement Altered payee Authorized maker
- 34. Types of Check Tampering Forged maker Forged endorsement Altered payee Authorized maker
- 35. Types of Check Tampering Forged maker Forged endorsement Altered payee Authorized maker
- 36. Altered Payee - Example
- 37. The majority of check tampering schemes do not consist of a single occurrence but instead continue over an extended period of time.
- 38. Red Flags for Check Tampering Schemes
- 39. Detection of Check Tampering • Account analysis through bank cut-off statements or online access • Bank reconciliations • Examine for possible alterations • Examine cancelled checks and review endorsements
- 40. Fraud Prevention: Check Tampering • Bank assisted controls • Physical tampering prevention on checks • Avoid pre-signing checks • Check cutting • Mail delivery
- 41. Expense Reimbursement Schemes Mischaracterized expenses Overstated expenses Fictitious expenses Multiple reimbursements
- 42. Expense Reimbursement Schemes Mischaracterized expenses Overstated expenses Fictitious expenses Multiple reimbursements
- 43. Expense Reimbursement Schemes Mischaracterized expenses Overstated expenses Fictitious expenses Multiple reimbursements
- 44. Expense Reimbursement Schemes Mischaracterized expenses Overstated expenses Fictitious expenses Multiple reimbursements
- 45. Expense Reimbursement Schemes Mischaracterized expenses Overstated expenses Fictitious expenses Multiple reimbursements
- 46. Detection of Expense Reimbursement Schemes • Review and analysis of expense accounts • Detailed review of expense reports
- 47. Fraud Prevention: Expense Reimbursement Schemes • Clearly defined expense reimbursement policies and procedures • Detailed review of expense reports
- 48. Types of Payroll Fraud Ghost employee schemes Falsified hours and salary schemes Commission schemes
- 49. Types of Payroll Fraud Ghost employee schemes Falsified hours and salary schemes Commission schemes
- 50. Types of Payroll Fraud Ghost employee schemes Falsified hours and salary schemes Commission schemes
- 51. Types of Payroll Fraud Ghost employee schemes Falsified hours and salary schemes Commission schemes
- 52. Detection of Payroll Schemes
- 53. Fraud Prevention: Payroll Schemes • Segregation of duties • Periodic review and analysis of payroll
- 54. WHY SOME EMPLOYEES COMMIT FRAUD
- 56. 10% Will never steal 10% Will steal whenever possible 80% May steal based on circumstances
- 58. In 92% of fraud cases reviewed, at least one common behavioral red flag was identified
- 60. Living Beyond Means Financial Difficulties
- 61. Living Beyond Means Financial Difficulties Unusually Close Association with Vendor/Customer Unwillingness to Share Duties
- 62. Living Beyond Means Financial Difficulties Unusually Close Association with Vendor/Customer Unwillingness to Share Duties
- 63. FRAUD PREVENTION
- 64. How can I prevent fraud in my organization?
- 65. Effective management oversight | Establish a tone at the top | Increasing the perception of detection | Segregation of duties (as best as possible for the size of the organization) | Bank reconciliations should be done on a monthly basis and appropriately reviewed | Enforcement of mandatory vacations | Job rotation policy | Conduct fixed asset inventories | Perform background checks on new employees and volunteer leaders | Fraud risk assessment by management to determine areas of highest risk | Perform self-audits; don’t assume your year-end audit will catch instances of fraud | Acquire proper insurance coverage | Tip line – should be anonymous, managed by a 3rd party, and available 24/7 | Ethics programs and training | Employee support programs | Clearly defined code of conduct There are many ways to prevent fraud…
- 66. Effective management oversight | Establish a tone at the top | Increasing the perception of detection | Segregation of duties (as best as possible for the size of the organization) | Bank reconciliations should be done on a monthly basis and appropriately reviewed | Enforcement of mandatory vacations | Job rotation policy | Conduct fixed asset inventories | Perform background checks on new employees and volunteer leaders | Fraud risk assessment by management to determine areas of highest risk | Perform self-audits; don’t assume your year-end audit will catch instances of fraud | Acquire proper insurance coverage | Tip line – should be anonymous, managed by a 3rd party, and available 24/7 | Ethics programs and training | Employee support programs | Clearly defined code of conduct There are many ways to prevent fraud…
- 67. CASE STUDY
- 68. Title: Director of Finance Schemes Involved: Fraudulent checks and wire transfers; altered salary and duplicated paychecks; expense reimbursements Length of Fraud: 7 months
- 69. Title: Director of Finance Schemes Involved: Fraudulent checks and wire transfers; altered salary and duplicated paychecks; expense reimbursements Length of Fraud: 7 months Amount Lost: $161,750
- 70. Lessons Learned • Lack of segregations of duties • Lack of oversight controls and financial reviews, including review of bank reconciliations • Importance of fidelity bond coverage • Too much trust placed in individual
- 71. WHAT DO I DO IF AN ISSUE IS DISCOVERED?
- 72. Interviews Selection of investigative team Evidence preservation Evidence gathering Reporting
- 73. Interviews Selection of investigative team Evidence preservation Evidence gathering Reporting
- 74. Interviews Selection of investigative team Evidence preservation Evidence gathering Reporting
- 75. Interviews Selection of investigative team Evidence preservation Evidence gathering Reporting
- 76. Additional Items to Consider • Consult employment counsel before attempting to recover any funds from final paycheck or vacation time • Need to manage internal and public disclosure
- 78. Contact Me Richard L. Wolf, CPA, CGMA, CFE rwolf@gma-cpa.com | LinkedIn Gross, Mendelsohn & Associates 36 S. Charles Street, 18th Floor Baltimore, MD 21201 www.gma-cpa.com 800.899.4623 Feel free to contact us anytime with questions.