Below are a couple of activities that can be used to find errors that may be very innocent, while at the same time identify signs of fraud. These tasks, known as controls within financial circles, can do double-duty in keeping an organization safe and error-free. They are by no means the only controls to prevent or identify fraud, but they are fairly easy to perform and worth a close look.
1- Look at bank accounts online ---Someone from the board could review bank activities online, looking for unusual vendors or checks. This task should be specified in the organization’s policies and procedures, and should be known by everyone. The idea here is to let people know that there’s a process established that is part of day-to-day business of the organization and not a big deal. Having a board member ask questions about checks and deposits should be expected. This is not micro-management, but a way to double check on bank transactions, like unusual vendors or amounts paid out or deposited.
A second pair of eyes looking at online bank data at least once a week can also help to find errors. For example, if the board member knows that someone donated $20,000 recently, but only sees $2,000 in the bank, then this person could contact the bank and inquire if this was an error from the part of the bank, which can happen. This discrepancy could also be an error from accounting that can be fixed right away. However, if errors don’t explain the discrepancies, then the situation needs to be further investigated. There’s a chance that someone misappropriated the funds, even if you don’t want to think about it.
2- Contact donors often --- Someone outside development dept. or the CEO’s office could contact donors, especially if they haven’t donated as before or as expected. The point is to have someone who usually doesn’t talk to donors to follow up on an informal basis, verifying if any donation or payment was made. Why is this important?
Many fraudsters call donors and instead of depositing the money in the organization’s bank account, they deposit it elsewhere. Sometimes the payment goes to a bank account with similar name or initials, while other times the check is endorsed and deposited elsewhere. Accounting doesn’t know about the donation, and nobody, except for the thief, knows about the payment. This issue may be found when someone different talks to the donors.
Note that issues found are likely to be very innocent as well. Maybe the donor forgot about making the donation. However, if the donor made a payment, but it didn’t make it to the organization’s bank account, it could be because it was lost or the bank deposited it in the wrong account by mistake. These situations usually don’t point to internal fraud, just errors that can be corrected.
These are only a few activities a nonprofit can do to protect itself against theft by high-level employees. It’s sad that we have to be a bit paranoid running a nonprofit, but it’s a must in today’s environment. Auditors may come in once a year to double check on financial issues, but they usually don’t find fraud committed by high-level swindlers, who can clean up their tracks well. By following just these two processes, nonprofits can make fraud harder to happen and that’s always a good thing.
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