Preventing Fraud in Nonprofit Organizations

Fraud is an uncomfortable subject for many small nonprofits. No one wants to think that their trusted staff and volunteers could be capable of committing fraud. But the unfortunate truth is that any organization can potentially be at risk for fraud - and small organizations tend to have fewer financial controls in place to prevent it.

The good news is that there are many ways to prevent nonprofit fraud. If possible, we recommend that your organization undergo regular risk assessments by an independent party. Sometimes it takes an outsider to spot the gaps in your internal systems. There are also many free or low-cost solutions you can implement immediately to improve your financial controls. Below, we've rounded up a sample of our fraud prevention advice from over the years. And when in doubt, never hesitate to reach out to an expert! Many CPA firms will provide free consultations to discuss your concerns and plan a way forward. Nonprofit fraud prevention is a serious matter, and your leadership needs to give it the attention it deserves.


Preventing Fraud

The number-one rule for preventing fraud is to divide financial responsibilities among multiple people. This keeps any one person from having too much control over your financial records. There are many other ways you can reduce your risk of fraud, from common-sense measures like pre-numbered checks and locked cabinets, to technological improvements like read-only account access and online bill pay.

Understanding Fraud

But why do people commit fraud in the first place? Understanding the "fraud triangle" - opportunity, incentive, and rationalization - can help you spot potential gaps in your internal controls.

Other Ways To Reduce Fraud Risk

Do you frequently handle cash (at auctions, for example)? Is your staff overwhelmed by financial reporting responsibilities? Are your digital files secure and easily accessible for review? How do maintain a chain of approval on payables? Take a close look at your organization's financial policies and procedures to reveal opportunities for improvement.