Scamming can be internal and external

October 27, 2014       The NonProfit Times      

Back in the days when life was simple, so was occupational fraud, which means an employee defrauding an employer or using the employer to commit some kind of fraud.

Gone are those days, according to Melanie Lockwood Herman of the Nonprofit Risk Management Center, speaking during the Summit for New Risk Champions in St. Petersburg, Fla.

Herman said it is imperative for nonprofit leaders to understand the various kinds of schemes people will use when committing fraud. They generally come under three main headings: cash fraud schemes, accounts receivable schemes and inventory and other asset schemes. Here’s a closer look:

  • Skimming: This is unrecorded sales/revenue, understated sales/revenue, theft of incoming checks (contributions are particularly vulnerable), swapping checks for cash.
  • Larceny: This is theft of cash, on-book fraud (theft of money that has already appeared on a victim employer’s books).
  • Fraudulent disbursements: Check tampering, paying phony vendors, overbilling legitimate vendors, making personal purchases with nonprofit funds are all in this category.
  • Improper posting of credits. This included discount, return or write-off.
  • Appropriating inventory and supplies for personal use. Stealing inventory.

Herman also warned of fraud by vendors. This includes: Overbilling schemes, phony companies, collusion between vendors and employees, kickbacks, and illegal gratuities (that is, something of value given to an employee to reward a decision after it has been made).