Nonprofit Financial Management Tips: Detect and Prevent Fraud

AbilaFraud. It’s a five-letter word that no one likes to hear or think about. Yet we’d be remiss if we didn’t mention fraud detection and prevention steps as part of our nonprofit financial management tips.

Fraud happens at even the best nonprofit organizations. You can have terrific employees, wonderful volunteers, and a great work environment, and fraud happens. People can succumb to temptation, or they may be facing some personal issues that encourage them to think about doing things they might not otherwise do.

Download and share this free infographic that will help you understand the risks of fraud at nonprofits, and the steps you can take to prevent it

Sticking your head in the sand like the proverbial ostrich won’t help you detect and prevent fraud at your nonprofit organization. Instead, take proactive, productive steps to prevent fraud and when it does occur, manage the aftermath.

Three Tips to Improve Nonprofit Financial Management and Prevent Fraud

The following three tips are part of a sound nonprofit financial management plan that includes fraud detection and prevention. Part of a good fraud prevention program is putting into place safeguards that simply discourage fraud in the workplace. Deterrence is better than detection and can prevent losses from impacting your bottom line.

  1. Fraud isn’t a five-letter word – talk about it. Make it clear that fraud won’t be tolerated at your organization. Talk about the risk of fraud in the workplace and explain the procedures for various financial transactions to your team so that there’s no confusion about how you want things done. For example, you may have rules in place about having two people in attendance at all times when cash transactions are being made such as at a fundraising event or open house. By clearly stating your expectations and workplace rules, you’ve made it more difficult for someone tempted to take a little off the top of the cash box to do so. Talking about fraud, how it happens, and what to do if it is detected is also an important part of fraud detection.
  2. Raise awareness. Hold training meetings and discuss the need for fraud prevention in the workplace with your team. Raise awareness among everyone that fraud detection and reporting is part of their job description. Help people understand how fraud occurs, situations that are likely to lead to fraud, and what to do if they see it happening in the workplace. Bringing the notion of fraud out into the open helps people remain vigilant about detecting it.
  3. Review procedures. Procedures for reporting fraud should be in place and clearly written out in your employee handbook so that everyone understands what to do if they notice something amiss. Review these procedures during employee training, and hold “practice drills,” like fire drills, around detecting and reporting fraud. These steps may seem redundant or unnecessary, but they will help people understand the seriousness of reporting fraud.

Fraud Prevention Policies

Fraud can take many forms. These include taking cash from the organization, stealing checks, or “fixing” the books so that the numbers aren’t reported accurately. Even something like stealing office supplies can be considered a form of fraud; it’s certainly theft and steals resources from your organization.

Consider implementing some simple fraud prevention policies to prevent most thefts:

  • Cash: Cash should be counted out and locked up in a safe, not a desk drawer. Count out petty cash with two witnesses present. Make sure that cash is signed into and out of the petty cash box with receipts kept with the cash itself. Allow only a manager to have access to the key.
  • Checks: Checks should also be logged into the accounts when received and locked in a safe.
  • Credit cards and data: Data including credit cards numbers should be kept secure. Back up your data onto a disk drive that can be stored offline. Encrypt or password-protect confidential information. Shred any documents that contain personal information including social security numbers and credit card numbers.

Although it’s hard to think about fraud occurring at your organization, nonprofit financial management includes taking steps to prevent theft of any kind. With some simple steps, good training, and open communications, you should prevent many common situations in which fraud occurs.

RBP Methods

RBP Methods helps right-brained people navigate a left-brained world. We offer nonprofit software and consulting services. We’d love to talk to you about your online fundraising or other needs. Contact us today or call 503-648-9051.