How Do I Protect My Nonprofit Against Fraud?

Did you know that nonprofit organizations tend to be more vulnerable to workplace fraud? In the Association of Certified Fraud Examiners (ACFE)’s 2022 Report to the Nations, it reported that the median loss for a nonprofit was $60,000, an amount that could be detrimental to some organizations.

Detecting and preventing fraud at a nonprofit requires everyone’s assistance, from understanding the common red flags of fraud to having robust internal controls to mitigate risk. As a nonprofit, do you have sufficient processes in place to protect your organization against fraud?

Before diving into prevention methods, here are some of the common types of fraud schemes that impact nonprofit organizations:

Internal Schemes

  • Employee theft and misappropriation of funds
  • Vendor fraud

External Schemes

Protecting your organization against these types of schemes may seem like a large undertaking, but there are practical prevention methods that organizations can easily adopt to boost their defense against fraudsters.

Set a tone of accountability and transparency at the top.

Strong fraud prevention should take a top-down approach. When leaders are invested in fraud prevention and set the tone of doing the right thing, other team members follow suit. The culture of an organization can be a fundamental internal control. According to the ACFE, 42% of fraud is detected by an employee tip. Employees feel empowered to speak up when they know that leadership has created a safe environment for concerns to be shared and that the workplace has established a culture of openness and accountability.

Document policies and procedures.

Having strong anti-fraud policies and internal controls are key to preventing fraud. Employees need to understand their role in combatting fraud and where to go for reviewing protocols. By outlining proper protocols and regularly training employees on those protocols, you can feel confident that your organization is taking necessary steps to prevent fraud and know what to do if fraudulent activity should ever take place.

Segregate key duties.

Within nonprofits, a singular person should not be in control of all compliance and audit-related matters. Splitting up key tasks is essential for creating a checks and balances system and ensuring that one person does not have access to all critical information and components of an internal control process. It’s recommended that duties related to authorizing a transaction, maintaining custody, recording a transaction and reconciling be completed by different people if possible. In smaller organizations, you may need to involve your board of directors in your internal control processes to help with this.

Implement anti-fraud controls.

Effectively mitigating the risk of fraud at a nonprofit requires the presence of anti-fraud controls. Anti-fraud controls are associated with lower losses in the event of a fraudulent scheme and quicker detection from the organization. Here’s a list of common controls to utilize at your nonprofit if you aren’t already:

  • External audit of financial statements
  • Code of conduct
  • Internal audit department
  • Management certification of financial statements
  • External audit of internal controls over financial reporting
  • Fraud reporting hotline
  • Management review
  • Fraud training for employees
  • Proactive data monitoring/analysis

Nonprofits all have different structures, so while there isn’t a one-size fits all approach to fraud prevention, the above techniques are excellent places to start. As mentioned above, fraud prevention isn’t the responsibility of one person or team, it requires all employees to do their part and feel empowered to speak up and make a difference.

BerganKDV’s Forensic and Data Services team works with nonprofit organizations to help them assess their anti-fraud controls and develop procedures that defend against fraudulent activity. Our certified fraud examiners understand the unique missions of nonprofits and the importance of compliance within their operations.

Interested in more ways to protect your organization? Check out BerganKDV’s fraud hotline service, PlainSight. PlainSight includes a web platform and phone reporting features so that employees have an easy way to report suspicious activity in an anonymous manner.  If you want to learn more about PlainSight and what BerganKDV’s forensic and data services can do for your nonprofit, contact us today!


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CATEGORIES: Nonprofit | Tech & Innovation
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