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How Non-Profits Can Prevent Fraud During the Busy Holiday Season

Non-profits typically receive most of their donations during the holidays and at year end. It is critical for these organizations to be on the lookout for fraud throughout the year but even more so during the busy season. Here are some fraud schemes non-profits should watch out for and how they can use internal controls to protect against financial losses.

Culture of trust

Charities generally are staffed by people who believe strongly in their missions, which contributes to a culture of trust. Unfortunately, such trust makes non-profits vulnerable to certain types of fraud. For example, if managers do not supervise staffers who accept cash donations, it provides an opportunity for them to skim cash. Skimming is even more likely to occur if a non-profit does not perform background checks on employees and volunteers who will be handling money.

However, skimming is not the most common type of fraud scheme in the non-profit sector. According to the Association of Certified Fraud Examiners, religious, charitable, and social services organizations are most likely to fall prey to billing schemes. Falsified expense reports and credit card abuse also are common in non-profits.

Internal controls matter

Even small non-profits that consider their employees and volunteers ‘family’ need to establish and enforce internal controls. Such procedures must be followed regardless of how busy staffers are processing donations and completing year-end duties.

Possibly the most important control to prevent occupational fraud is segregation of duties. To reduce opportunities for any one person to steal, multiple employees should be involved in processing payables and receivables. For example, every incoming invoice should be reviewed by the staffer who instigated it to confirm the amount and that the goods or services were received. A different employee should be responsible for writing the check.

In addition, do not forget to protect electronic records that include data on donors, vendors, and employees. Staff members should be given access only to the information and programs required for their job, and all sensitive information should be password-protected.

Caution with special events

Many non-profits depend on money raised from a big annual gala or other special event at year end. During crowded, chaotic fundraisers, you will want to discourage supporters from making cash payments. Instead, presell or preregister event participants to limit access to cash on the day of the event. If you decide to accept cash at the door, try to assign cash-related duties to paid employees or board members, rather than unsupervised volunteers.

For more tips on preventing fraud in your non-profit, contact us. We can help you reinforce internal controls as well as investigate suspected theft.

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