Just Released: ACFE Non-Profit Fraud Report

Every two years, the Association of Certified Fraud Examiners (ACFE) publishes what has become the definitive guide for preventing and detecting workplace fraud. The recently released Report to the Nations: 2020 Global Study on Occupational Fraud and Abuse draws conclusions from more than 2,500 fraud incidents — including 191 in non-profit organizations.

In fact, this year’s report devotes a special section to fraud in non-profits. Although non-profit fraud is not necessarily worse than fraud in for-profit companies, it can be different in important ways.

Fewer Resources

According to the ACFE report, the median loss for defrauded non-profits is $75,000, considerably less than the $125,000 median for all organizations. However, non-profits generally have much less to lose than, say, the average bank or manufacturer.

Indeed, it is a general lack of financial and staff resources — in addition to less vigorous oversight and enforcement of internal controls — that may make non-profits fertile ground for fraud. Although many try to foster a trusting, familial culture, this can lead to risky lapses. Executives and managers may, for example, override internal controls, allow unproven staffers to accept cash donations, rubber-stamp expense reimbursement reports, or neglect to segregate accounting duties.

Controls & Cost

The ACFE found that non-profits adhere at lower rates than for-profit companies to four primary internal controls:

  • Surprise audits
  • Formal fraud risk assessments
  • Management review
  • Maintaining an internal audit function

Some of these controls can be costly, of course. But not all effective antifraud measures are expensive. According to the study, adopting a code of conduct is the control most closely associated with lower fraud losses in all types of organizations. Writing a code and requiring staffers to read and sign it can reduce losses by as much as 50 percent.

Corruption Is Common

As with all types of organizations, non-profits most often fall victim to corruption schemes (41 percent of cases), with financial statement fraud being relatively rare (11 percent). Although corruption is associated with lower losses than financial statement fraud (a $200,000 median loss vs. $954,000 median loss in all organizations), conflicts of interest, bribery, and other forms of corruption can destroy a non-profit’s reputation — and its future.

Most non-profit fraud schemes are found out when someone says something. Approximately 40 percent are revealed by tips from staffers, board members, vendors, clients, and the public. To make whistleblowing as easy as possible, consider establishing an anonymous fraud hotline. In addition, because tips via email and online forms have become more common in recent years, the ACFE recommends offering multiple communication channels.

Act On The Data

No doubt you have thought about your non-profit’s fraud risk. But if you have not put controls in place and ensured they are followed consistently, your organization could become yet another statistic. Talk to us about cost-effective ways to protect your non-profit’s resources.

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