Protecting Your Nonprofit from Theft and Fraud: Essential Steps for Prevention
Nonprofit organizations dedicate their services to supporting their communities. Unfortunately, they can be just as vulnerable to theft and fraud as regular for-profit businesses. Due to limited resources, nonprofits tend to operate with smaller teams, fewer internal controls, and a high level of trust — all factors that can create opportunities for the unthinkable to happen. The good news is there are effective recommendations you can take to protect your organization and ensure that its funds are used for their intended purpose.
Understanding the Vulnerability
Nonprofits are especially vulnerable to theft or fraud because they rely heavily on donations, grants, and volunteers, which can create a lack of oversight in financial operations. Additionally, many nonprofit organizations have fewer staff members; this means fewer individuals may handle multiple responsibilities daily, making it easier for fraudulent activities to go unnoticed. These are five recommendations to help protect your nonprofit and reduce the overall risk.
Recommendations
- Implement Strong Internal Controls
Create and establish clear financial policies and procedures, such as requiring dual signatures for checks, maintaining proper segregation of duties (i.e., one person should not be handling cash and reconciling bank accounts), and/or requiring appropriate levels of review/approval. - Regularly Review Financial Statements
Ensure that board members regularly review financial reports. It is common for financial reports to be reviewed and discussed monthly during board meetings. Transparency with others not involved in the main day to day is key to spotting or questioning potential issues before they escalate into something more severe. - Foster a Culture of Accountability
Create and foster a workplace environment where transparency and accountability are valued. Encourage staff and volunteers to report any suspicious activity and make it clear that there are consequences for fraudulent behavior. - Train Employees and Volunteers
Provide trainings on ethical financial practices and the importance of safeguarding the organization’s assets. Educate employees and volunteers about common fraud schemes and the steps to report potential issues. - Use Technology to Track Donations and Expenses
Utilize accounting software designed for nonprofits to track donations, expenses, and financial activity. Software capabilities and tools can help ensure accuracy and flag any discrepancies it may encounter. Most software today incorporates an audit trail, which shows the flow of processing financial activity and who performed the procedure. In addition, using platforms for online donations can further protect funds from being stolen.
Fraud and theft can happen to any organization, whether nonprofit or for-profit. By implementing strong internal controls, regularly reviewing financial statements, fostering accountability, properly training staff, and utilizing technology, organizations can better protect themselves and focus on their core mission of serving their local communities. Just be mindful that these safeguards will not indefinitely mitigate the risks of fraud and theft, but can be beneficial in reducing the chances of falling victim — it is always better to be proactive than reactive.
