Nonprofit organizations are particularly susceptible to fraud and/or embezzlement.  Generally, the people committing these crimes are not bad people, they simply have motive, due possibly to a bad financial situation at home, and have opportunity, due many times to lack of controls in a lean organization.
There are measures that your organization can implement to help safeguard against fraud.  Preventive procedures, however, must be applied on a consistent basis. 
Let’s identify some common areas of risk and gaps in controls.
 Where are my points of risk?

• Cash transactions and receipts
• Accounts payable
• Account transfers
• Access to inventory/assets
• Payroll
• Inappropriate use of restricted funds (often overlooked)

 Where do I have risk of misappropriation of assets?

• A lot of cash received or cash on hand
• One person performing a variety of tasks
• A lot of people with access to inventory or assets
• Shortages of funds

 There is a difference between preventing fraud and detecting fraud. Let’s now look at some controls for both.
 Preventive Controls:

• Authorization
• Segregation of duties
• Access controls

For example, you should not have the person who processes the checks also be the person who signs the checks.  Segregation of duties can be particularly difficult in a small organization; however, you can enlist the help of your Board of Directors. 
Detective Controls:

• Transaction review
• Bank statement review
• Financial statement analysis

In order to be successful, you must perform regular reviews of compliance or adherance to both types of controls.
Additionally, you should conduct open and frequent dialogue with the employees.  Discuss examples of inappropriate behavior with staff, such as accepting gifts.  Be prepared to discuss real world examples and the effects to the organizations.  Unfortunately, there are plenty of examples that can be gathered just from your local newspaper.  Finally, encourage your staff to ask questions.
Some other suggestions are to adopt an anonymous whistleblower program, force employees to take vacations days where someone else performs their job, and implement a policy that all mail is to be opened at the front desk.  You may be surprised at what can be revealed simply by instituting a greater level of transparency.
In closing, the most important thing you can do for your nonprofit organization, no matter your position, is to lead by example in both words and deeds.
Please contact our firm at (317) 782-3070 if you would like a list of additional reference articles.