The Fraud Examiner

Why Not-For-Profits Aren’t Comfortable Using the ‘F’ Word
 

By: Jeremy Sandbrook                           

Chief Executive Officer of Integritas360


Every year for the past decade, the not-for-profit (NFP) sector has been voted the most trusted in the world — but just how valid is that ranking when it comes to fraud? The sector remains highly vulnerable due to its foundation on a veneer of trust, however there continues to be a high level of complacency around the topic. Unless NFPs start to recognize and tackle fraud risk, their reputations and public confidence built up over many years could be wiped out overnight. So where does this apparent reluctance to deal with the issue stem from?

 

The Unraveling of an NFP fraud scheme

A recent fraud investigation I carried out on behalf of a large international NFP is a textbook example of how fraud can occur in this sector. Despite one of its humanitarian programs being externally audited four times (two external financial audits, a capacity audit and a specific program audit), ongoing mutterings continued to circulate about improprieties. None of the four audits had highlighted any irregularities. On the contrary, the capacity audit stated that the program had been “appropriately designed, well planned, and effectively managed,” while the program audit confirmed that all relief items had been physically delivered to all beneficiaries.

 

The six-month program had been designed and managed by a highly respected, trusted senior manager. Acknowledged as an expert in his field, he regularly presented on the topic at various regional and continental forums. It was the third such relief program he had overseen in the last four years.

 

While on the surface there were no anomalies, closer inspection of the beneficiary sign-off forms highlighted a number of irregularities. The same pen had been used to complete all 2,500 forms, while the beneficiary’s thumbprints (confirming receipt of the items) became successively lighter each month. This became the starting point for unraveling a long-standing, well-entrenched fraud scheme. Perpetrated by the senior manager himself, it was made up of a network of staff from all levels of the organization, who together had bypassed and undermined key processes and procedures.

 

Its starting point had been the fraudulent inflation of the real needs, enabling ghost beneficiaries to be included in the program. Various front companies were established, with the staff members involved colluding to ensure they were successfully awarded key contracts. A number of these companies then purchased relief items from other staff members, one of whom was the Chair of the NGO’s in-country board.  


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