Bookkeeping for Nonprofit Organizations Helps Prevent Fraud

bookkeeping for nonprofit organizationsTrust needs to be earned. Bookkeeping for nonprofit organizations records financial transactions and information pertaining to businesses on a daily basis, ensuring that records are correct, up-to-date, and comprehensive. This helps eliminate potential fraud within a nonprofit.

Nonprofits, just like other types of companies, work best with trust and mutual respect among colleagues. Without trust, your nonprofit can suffer the ramifications and may create a hostile, unfriendly, and uncomfortable environment. Nonprofits should guard their organization by not trusting blindly and creating a potential environment for fraud and theft.

The Ramifications of Trusting Blindly

A story that speaks volumes about trusting blindly is about Martha (not her real name). Martha worked at a large nonprofit organization and she had been working there for over thirty years. She was honest, hard-working, and diligent in the accounting department and was trusted with several areas of the organization’s finances.

Internal controls had been set in place, but they were often looked-over because Martha was a senior staff member who was respected and trusted by everyone. She also wasn’t questioned by other staff when she ignored the procedures that had been set in place. Because Martha was valued and trusted by everyone, she never had anyone present when she was counting petty cash or handling the checkbook.

One day, it was discovered that quite a bit of the petty cash had gone missing. During an audit, it was revealed that small amounts had been taken here and there from the petty cash and the checking account. Martha oversaw both and she had been able to make slight adjustments in the entry ledgers to avoid suspicion for a long time. The auditors were able to uncover the discrepancies almost immediately and Martha came forward to tell the truth about stealing a gradually increasing amount of money for her personal gain.

Is Martha the only one that has done this? We do not believe so, and a quick survey of the various nonprofit journals revealed similar patterns of fraud. Fraud does not occur in seclusion. Fraud tends to occur when organizations are not keeping a close eye on their nonprofit’s financials, or there are gaps within their system. In this case, blindly trusting an employee overrode being cautious and protective of their finances. Exceptions were made for Martha that should not have occurred. The result was the organization lost money, a trusted employee, and their reputability.

How to Prevent and Identify Fraud

Trust is a valued commodity in the workplace; however, it should not override the use of standards, bookkeeping for nonprofit organizations, and more.

  • How to Prevent Fraud
    • Standards are the accepted norms for an industry. Accounting standards, security standards, and workplace standards can be systemized and recorded in written manuals that are provided to all employees. Everyone should be held to the same shared standard of conduct for their actions.
    • Internal controls are the processes and procedures put into place by bookkeeping for nonprofit organizations to handle their finances. These controls should also be written down in manuals and given to employees. Training sessions can offer refresher courses to ensure every staff member understands the controls set in place to keep consistency across the board.
  • How to Recognize Fraud
    • Your organization may see an inconsistency and request to bring in an outside auditor to examine your nonprofit’s financial records, provide recommendations, and discover discrepancies.
    • Provide your employees with an anonymous method to report any suspicious behaviors to their supervisors that lead them to believe someone is committing fraud.

Trust is important within an organization, but do not let that diminish the procedures that your nonprofit has set in place to prevent fraud. Assure your employees that their work matters, their ideas are valuable, and try to implement their suggestions within your organization. Trust creates a peaceful work environment, and will encourage loyalty from your employees. Take the necessary steps needed to prevent fraud before it affects your nonprofit.

RBP Methods

RBP Methods is a nonprofit software and consulting firm that helps right-brained people navigate a left-brained world. We understand how hard it is to ask these tough questions and to challenge your organizations to implement internal controls. We offer a wide range of services as accounting software consultants, who are focused on helping nonprofits manage their accounting and financial needs. Our software choices include Ablia, Accufund, and other nonprofit accounting software. For more information, visit RBP Methods or call us at 503-648-9051 for a consultation.