BEST PRACTICES FOR NONPROFIT FRAUD

AND EMBEZZLEMENT PREVENTION

CENTER FOR NONPROFIT EXCELLENCE

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$40 Billion

THE HEADLINES• Former Goochland County Treasurer convicted of

stealing over $180,000 from the county.

• Former CEO of Girls Scouts of Virginia guilty of embezzling nearly $23,000 over a 12-month period.  The organization spent twice as much in forensic auditing costs to figure out what happened.

• Former President of Ashland Little League convicted of stealing over $20,000 from the organization.

COLLATERAL DAMAGE AND COST

• Loss of Revenue•Distraction from Mission• Loss of Public Trust• Public Embarrassment•Disillusionment Among Volunteer Base

CONTRIBUTING FACTORS

• Education and Awareness• Oversight• Internal Controls• Engaged Board of Directors

EDUCATION AND AWARENESS

• New board orientation• Annual leadership and staff development

OVERSIGHT AND INTERNAL CONTROLS

• Multiple layers of review and approval…tedious but important!!! Examples include: • Multiple signatories on checks (careful about signature stamps and

never pre-sign checks)• Multiple sign-offs to approve expenditures• Supporting documentation requirements

• Segregation of duties• Don’t let the same person prepare payment records, authorize

payments, disburse funds, and reconcile bank statements.• Maximize use of automated controls (e-notifications and alerts on bank

and credit card accounts)

OVERSIGHT AND INTERNAL CONTROLS

Miscellaneous Suggestions• Do an annual inventory of fixed assets• Background checks, credit checks, and personality

assessment tests for potential employees• Have an audit committee• Have external audits• Have a Code of Conduct• Have a Whistleblower Policy• Regular communication with donors• Minimize reliance on debit cards and cash

OTHER RISKS•Disclosure requirements (material diversion of assets on Form 990)• Intermediate sanctions (excise tax)• Revocation of Exempt Status• Personal liability to officers and directors

QUESTIONS TO ASK YOURSELF

•What is my organization doing to protect itself?

•What could we be doing better?

•What have I learned today that might be helpful to my organization?

A FEW HELPFUL RESOURCES

• National Council of Nonprofits – Myth: Audits Uncover Fraud (www.ncna.org) (www.councilofnonprofits.org/nonprofit-audit-guide/myth-audits-uncover-fraud)

• BoardSource (www.boardsource.org)

Any Questions?