The Fraud Examiner
Avoiding Fraud in Nonprofits
Yasmin Hoffmann, CFE
Research Project Manager, Association of Certified Fraud Examiners
According to the ACFE’s upcoming 2020 Report to the
Nations, nonprofit organizations were the victim in 9% of fraud cases reported by CFEs in the study — with a median loss per instance of $75,000 and an average loss of $639,000. Of these cases, nonprofit employees were more likely to commit fraud
(39%), but those at the director and board level tended to steal more ($250,000 compared to $21,000 by employees). These losses might seem small when compared to the losses experienced by other types of victim organizations, but they can have a significant
impact on nonprofits since many of them already have extremely limited financial resources. Furthermore, a fraud loss can be devastating to a nonprofit if the reputational damage and break in public trust cause a withdrawal of support and resources
Nonprofits — educational, religious, social services and other charity institutions — aim to improve and help others in their community. Many distribute financial aid through scholarships, grants and awards, which makes them vulnerable to potential abuse
or misappropriation of funds if not overseen properly. Nonprofits also tend to have large amounts of cash and checks coming in from donors and other sources, which provide an opportunity for skimming or cash larceny. Some nonprofit organizations operate
with minimal staff or experience high turnover of employees and volunteers. These conditions can make segregating duties, maintaining adequate internal controls and educating team members difficult.
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