Tip of the Week: Eliminate temptation to steal from your group
If you think that your nonprofit is immune to embezzlement, don’t be naive!
A new study by researchers at Villanova University explores the extent of embezzlement within the Catholic Church. They surveyed chief financial officers of 78 Catholic dioceses in the US (that’s half of the dioceses in the country). They found that 85% reported embezzlements from 2000 to 2005. Seven reported losing $500,000 or more!! A copy of the full report is available online.
That is a shocking amount of theft. The researchers point out that churches offer an ideal setting for internal theft because in a small operation one employee may be responsible for everything — giving them access to both assets (often cash) and the financial records. Sound familiar? This is a problem for any small nonprofit.
I’ve worked with some very reputable organizations that have been the victims of embezzlement, primarily because of poor internal controls. Here are a few ways you can improve controls (from Wayne Amundson at The Canadian Association).
Internal Control Measures
The internal control measures that should exist in associations and non-profits include:
- Whenever possible, segregate duties. If one person has access to, or processes an entire transaction (e.g. payment and processing), the risk of fraud is high.
- If possible, rotate work duties. Often, the embezzlement scheme requires constant cover-up activity, and rotation of duties will make that difficult.
- Obtain insurance, and when necessary, bond employees.
- Control the addition of new vendors.
- Control changes to the payroll.
- Watch for signs of addiction and/or increased affluence in employees/volunteers.
- Have your bank account statements delivered directly to the executive director.
- Ensure that effective policies are in place to manage refunds.
- Keep blank cheques secure, and maintain number sequence.
- Control access to the credit card processing.
- Have all invoices approved prior to payment.
- Have policies in place for expense reimbursement, and ensure all claims are approved.
- Get the auditor to provide a management letter with particular attention to internal control measures.
- Ensure that reconciliations are prepared and reviewed.
- Ensure that policies are in place to address gifts, freebies, trips, etc.
Some common fraudulent activities include:
- Theft of cash receipts
- Under-the-table payments, bribes or kickbacks.
- Recording false discounts
- Theft of incoming cheques
- Tampering with cheques issued (forged signatures, altered dates, adjusted amounts)
- Stealing blank cheques or counterfeiting duplicate cheques with altered payees
- Creating and paying fictitious vendors
- Creating inflated or phony expense vouchers
- Altering billing records
- Theft of inventory
- Altering purchasing, receiving or shipment records
- Paying non-existent employees
- Skimming payments on account. Typically, an employee records a contract at a lower amount than actually owed then steals or “skims” the excess.
- Falsifying receivables, and stealing the payments.
- Altering accounting records to hide the theft of funds
- Cash disbursement scams
- Credit card refund schemes
Charity Village also has a great article on this with tips to improve your procedures: Nonprofit fraud: Focus on segregation of duties and good reporting procedures.
Photo via Flickr: “Money offers” in Thailand by zzen.
Related Posts:
- Tip of the Week: Event accounting
- Tip of the Week: Handy tax credit calculator
- Tip of the Week: Making connections at special events
- Software discount coming next week
- Elimination of capital gains tax to encourage gifts
