Staying Dry Amid Business Storms: Accounting for Nonprofits


accounting for nonprofitsAccounting for nonprofits also means helping your organization weather both the usual bouts of rainy weather and the big storms of life. While we all wish for smooth sailing, it is only when the big storms of life test us that we can be sure of our course.

Subtitle that makes a point

Did you know what the emergency broadcast system tone meant when you were a child? Some children instinctively cover their ears and hide behind the sofa when the tone comes across the television during a system test.

It would be wonderful if our organizations came with similar ‘warning tones’ the way the National Emergency Broadcast System warns the public when a bad storm approaches. Unfortunately, most problems do not occur with such dramatic warnings.

Problems like fraud, theft, and other workplace issues often come with subtle warning signs. Like a good meteorologist, you’ve got to learn to read the weather in your workplace to know how to react.

Accounting for Nonprofits: Warning Signs of Fraud

It’s a frightening statistic: On average, organizations lose 5% of their revenues to fraud each year, according to The Association of Certified Fraud Examiner’s Global Fraud Survey. Fraud can mean anything from purposely providing false information on the accounts to actively stealing from the petty cash drawer.  These are the storms of nonprofit life that all hope never to encounter.

Just as you wouldn’t want to get caught in a hurricane or tornado, you also do not want your nonprofit association to become embroiled in a fraud investigation. There are some specific signs of workplace fraud that you should be aware of so that if you see them, you can take prompt action and investigate them.

Possible Signs of Workplace Fraud

The following signs are given as guidelines only. It’s important not to jump to conclusions, but to investigate any questionable activities thoroughly.

  • Reluctance to work with auditors: Employees who actively hide from investigators or auditors, or who cannot seem to locate critical files just when requested by your auditors, may be hiding something. He or she may feel guilty or afraid that incriminating information is being revealed.
  • Living beyond one’s means: An employee making a modest salary who suddenly shows up at work in a brand-new sports car or with lavish clothing, jewelry or accessories, may have legitimately come into money. An inheritance or a family member’s gift is a reasonable explanation for such spending. But, if you notice a pattern of the same employee being flush with cash and showing off expensive purchases often, you may wish to discretely investigate.
  • Not volunteering work updates: While busy employees may also not be forthcoming with updates, fraudsters often hide behind busyness to cover their tracks. If you’re wondering what someone does all day because they always seem busy yet never complete their assigned work, there may be something not quite right going on with that employee.
  • Not taking a vacation, sick time, or personal days: It’s true that some people are quite dedicated to their work. They may not take off their allotted personal or vacation time. However, fraudsters often refuse to take vacations or sick leave because they don’t want to be away from the office for too long. As frauds continue, they become more complex, which requires more of someone’s time to manage. Employees committing fraud may also be afraid that if a temp is brought in or if someone else goes through their work, they will notice the fraud.
  • Refusing to upgrade to a new system: A big red flag with accounting for nonprofits is an employee or manager who absolutely refuses to upgrade to a new accounting system. The manager may have discovered a loophole in the software that enables the fraud to continue. Changing to a new system closes this loophole, so they push back on a new system.

Methods of Preventing Fraud

There are many methods of preventing fraud, although no one single method is foolproof. Just as you can be warned of an approaching storm but cannot prevent it, these steps are intended to discourage fraud and warn anyone thinking of it to change their minds.

  • Upgrade to a good accounting system: Organizations that actively monitor and study their accounting data on a regular basis report fewer events of fraud and events of shorter duration than their counterparts who do not have a strong accounting system, according to an article in the Miami Herald. “These sums…justify the expense in an accounting system,” the article’s author writes. When people know you are monitoring the data they are less likely to try to manipulate it to cover their fraud or to commit fraudulent acts.
  • Control access to cash: Carefully control access to petty cash and incoming checks. Require two employees to be present anytime cash is counted, checks are placed in the safe, or money is handled.
  • Provide employees with a way to report fraud: Encourage a culture of ethics and responsibility in your organization. Make fraud so unthinkable that employees will be quick to report it. Ensure that managers understand that fraud reports are to be taken seriously and addressed quickly if they should occur.

With every nonprofit organization comes an unpleasant storm or two. You can keep these storms to a minimum by putting into place good software, clear processes, and open lines of communication. It’s shelter from the storms of life when you need it most.

RBP Methods helps right-brained people navigate a left-brain world. We provide accounting software, advice, and consulting for nonprofit organizations. Our financial management systems include software such as Abila MIP Fund Accounting and AccuFund Accounting Suite. These and other software solutions for nonprofit organizations provide easy to use, understandable and useful software to track finances for nonprofits, manage donations, and donor campaigns, and much more.  Contact us or call 503-648-9051 for a consultation.