Prevent and detect fraud in any size NFP organization

Organizational leaders often hear the word “fraud” and think that it won’t happen to their not-for-profit organization. Yet, every year, thousands of organizations are forced to address fraud in its various dimensions. At the most basic level, it’s important to have the mindset that fraud can take place under your roof, and once you acknowledge that, it’s important to know how to detect and prevent fraud within your organization, both now and in the future.

With these issues in mind, Baker Tilly hosted a session at the Resource Center for Religious Institutes (RCRI) National Conference. Our not-for-profit specialists discussed a variety of fraud-related topics, including:

• Building fraud awareness in today’s environment
• How to better detect fraud
• How to improve your organization to prevent fraud
• Current trends in fraud to keep you alert

A summary of the discussion can be found below, and you can watch a recording of the presentation here.

Building fraud awareness – What leads to fraud?

It’s always good to start with the simple reminder of the fraud triangle. Fraud is the intent to deceive and can manifest itself when three factors are present: motivation, rationalization and opportunity. Motivation often stems from financial or work pressure, while rationalization includes internal reasonings such as “I’m overworked and underpaid,” or “I’ll pay it back.” Opportunity, meanwhile, is generally a perceived lack of internal controls or ineffective monitoring of controls (i.e., “management won’t care” or “nobody will notice”). Organizations can only prevent opportunity on the fraud triangle, which is why the internal control environment is so important.

How to better detect fraud?

Studies have shown that roughly one-third of religious congregations will experience fraud at some point. Digging deeper, the vast majority of fraud consists of misappropriation of organizational funds for personal use. This frequently takes place through accounts payable or credit card and expense reimbursements.

Unfortunately, finding this fraud can be difficult because it typically occurs from a position that is manager or above. The person likely has a decent amount of authority or control and potentially a lot of trust within the organization. With their influence and position, those who work for them and see activity that is suspicious, are likely concerned for their job if they report anything and/or are unsure if the activity is fraudulent because the position and/or person is revered within the organization and may have justified the activities.