Reflections on BLF14: Post #11 – Nonprofit Fraud

Reflections on 2014 Board Leadership Forum, submitted by Carrie Minnich. This is the sixth of several reviews by Carrie and the session on Fraud was also reviewed by Laura Boyer.

GOB Washington
The GOB in front of the Washington Monument. Carrie Minnich is standing on the right.

The Anatomy of a Fraud (Lawrence Hoffman)

Working in public accounting, fraud seminars and especially those that give specifics as to how the fraud was initiated and how it was caught, always interests me. This session was based on an actual fraud investigation by the speaker, Lawrence Hoffman.

Nonprofit fraud is in the spotlight.

More and more we see in the news that fraud has occurred in a nonprofit organization. The IRS redesigned From 990 (the nonprofit organization tax return) in 2008 to add additional governance questions. It even added the question “Did the organization become aware during the year of a significant diversion of the organizations’ assets?”   In other words, did fraud occur?

The case described in the session included a CTO (Chief technology Officer), who during his tenure at the organization (7 years), paid a related company for a significant amount of IT equipment and software that could not be located.

It was determined that over 150 servers were “purchased” and multiple copies of the same enterprise-level software. After the CTO returned back to Russia citing “personal reasons” the new CTO (the whistle-blower) could not locate many of the equipment purchases.

It is important for nonprofit boards to be aware of the possibility of fraud occurring within their organization and how to prevent it. Often times, nonprofit organizations have an atmosphere of trust and a focus on the mission, rather than making sure proper controls are in place.

 Some of the steps organizations can implement to deter fraud are the following:

  1. Implement a whistle-blower policy.
  2. Good tone at the top.
  3. Proper internal controls/segregation of duties.
  4. Request multiple quotes from different vendors.
  5. Perform background checks.

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