fraud prevention for nonprofits: avoiding fraud schemes and fraudsters
TRANSCRIPT
Introductions
• CPA, CGMA, CFE
• Principal at Gross Mendelsohn
• 19 years of public accounting experience in the nonprofit sector
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
Billing Schemes
False invoicing via shell companies
False invoicing via non-accomplice vendors
Personal purchases with company funds
Billing Schemes
False invoicing via shell companies
False invoicing via non-accomplice vendors
Personal purchases with company funds
Billing Schemes
False invoicing via shell companies
False invoicing via non-accomplice vendors
Personal purchases with company funds
Billing Schemes
False invoicing via shell companies
False invoicing via non-accomplice vendors
Personal purchases with company funds
Fraud Prevention: Billing Schemes
• Review vendor list• Approval by multiple employees• Analyze vendor purchase
The majority of check tampering schemes do not consist of a single
occurrence but instead continue over an extended period of time.
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
Fraud Prevention: Check Tampering
• Bank assisted controls • Physical tampering prevention on checks• Avoid pre-signing checks• Check cutting• Mail delivery
Expense Reimbursement Schemes
Mischaracterized expenses
Overstated expenses
Fictitious expenses
Multiple reimbursements
Expense Reimbursement Schemes
Mischaracterized expenses
Overstated expenses
Fictitious expenses
Multiple reimbursements
Expense Reimbursement Schemes
Mischaracterized expenses
Overstated expenses
Fictitious expenses
Multiple reimbursements
Expense Reimbursement Schemes
Mischaracterized expenses
Overstated expenses
Fictitious expenses
Multiple reimbursements
Expense Reimbursement Schemes
Mischaracterized expenses
Overstated expenses
Fictitious expenses
Multiple reimbursements
Detection of Expense Reimbursement Schemes
• Review and analysis of expense accounts• Detailed review of expense reports
Fraud Prevention: Expense Reimbursement Schemes
• Clearly defined expense reimbursement policies and procedures
• Detailed review of expense reports
Living Beyond Means
Financial Difficulties
Unusually Close Associationwith Vendor/Customer
Unwillingness to Share Duties
Living Beyond Means
Financial Difficulties
Unusually Close Associationwith Vendor/Customer
Unwillingness to Share Duties
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…
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…
Title: Director of Finance
Schemes Involved: Fraudulent checks and wire transfers; altered salary and duplicated paychecks; expense reimbursements
Length of Fraud: 7 months
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
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
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
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Contact Me
Richard L. Wolf, CPA, CGMA, CFE [email protected] | LinkedIn
Gross, Mendelsohn & Associates36 S. Charles Street, 18th FloorBaltimore, MD 21201www.gma-cpa.com 800.899.4623
Feel free to contact us anytime with questions.