5 tips to combat organizational fraud

Fraud within an organization is capable of damaging donor trust, pushing away good employees and siphoning off much-needed funds.

During the 2015 Nonprofit Risk Summit workshop “Ain’t Misbehavin’: Protecting Your Organization’s Reputation From Fraud,” Mary Ann Riesenberg, a member of the Nonprofit Risk Management Center’s board, shared five tips on how to identify and counter fraud.

  1. Be aware of warning signs. Red flags can be apparent both in individuals and the organization as a whole. Look for individuals who are living beyond their means, have financial or personal difficulties and have exhibited control issues or changes in behavior. Organizationally, keep your eyes peeled for frequent exceptions to policies, lack of details on invoices and high employee turnover.
  2. Practice strong governance. Board member should be independent of management and actively oversee that controls are in place to prevent and detect fraud. At least one board member should have relevant financial experience and fraud risk management activities and resources should be shared with the board.
  3. Identify and assess inherent fraud risks. Map risks with controls to determine your residual risk. Follow the money. Consider the more likely schemes that your organization could face and determine whether you are in position to counter them.
  4. Respond to mitigate risks. Develop an action plan to address holes in your organization. Anti-fraud controls can include codes of conduct, dual signatures and authorizations, management review and surprise audits, bank reconciliations to account for checks, using electronic payments where possible and job rotations and mandatory vacations.
  5. Monitor and review your risks. Consider the results of audits and investigations within your organization and with other organizations, pursuing prosecution and other remedies, the transparency of notifications and disclosures and the maintenance of sufficient insurance.