Another in a series of articles related to association management selected from our reading list by:
Robert O. Patterson, JD
CEO/ Principal
The Center for Association Resources, Inc.
Fraudulent acts which impact an organization can occur either outside or inside the organization. Some estimates put the total percentage of fraud for the non-profit sector as high as 13% of annual donations. While fraud is more often committed by lower level employees, the higher the employees’ position in the organization, the larger the total fraud losses tend to be. CEOs commit the lowest percentage of fraudulent acts, but their fraud tends to involve larger monetary amounts.
Expense reports are also often a conduit for fraud. A system for verifying expense reports should be implemented and expense reports and receipts should be examined prior to payment. Externally, fraud by vendors, either with collusion from an employee, or committed totally by the vendor is also a concern. Some scenarios include a manager authorizing payment for goods never received or authorizing payment to a nonexistent company where the funds are ultimately received by the authorizing employee. Segregation of duties for payment and purchasing, effective computerized payment system controls, and dual signature requirements for checks can reduce risk of this type of fraud. Periodic checks of vendor records to ensure that vendors actually exist are also a deterrent.
The potential negative effects of fraud on the non-profit organization compel everyone in a non-profit to be aware of the need for fraud prevention. The success and reputation of the organization depends on it.