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What’s Your Organization’s Fraud Risk?

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The term “fraud” has many interpretations and applications in today’s culture, from health care fraud and identity theft to insider trading and much more. The one common element, however, is that all fraud involves a violation of trust.

Unfortunately, the damage from that volition of trust is most acute at nonprofits, which by their nature and purpose are part of the public trust. Fraud can wreak tremendous damage not just on a nonprofit’s finances, but on its reputation and donor confidence as well. Yet the trusting nature at many ministries and other nonprofit organizations leaves them more vulnerable to fraud.

The 2018 Report to the Nations on Occupational Fraud and Abuse from the Association of Certified Fraud Examiners (ACFE) includes some sobering statistics you should be aware of:

  • Nonprofit organizations accounted for 9% of all occupational fraud cases in the study
  • Nonprofit organizations suffered median losses of $75,000
  • Most fraudsters are first-time offenders with clean employment histories; 85% have never been punished or terminated by an employer for fraud-related conduct
  • The median loss from fraud at religious, charitable, and social service organizations was $90,000 and the top types of fraud were:
    • Billing – 40%
    • Corruption – 34%
    • Expense reimbursement – 29%
  • The top three internal control weaknesses leading to fraud were:
    • Lack of internal controls – 30%
    • Override of existing controls – 19%
    • Lack of management review – 18%
  • While accounting and operations were the most common positions for fraud, schemes by executives and upper management resulted in the highest losses by far
Position% of Fraud CasesMedian Loss
Accounting14%$212,000
Operations14%$88,000
Sales12%$90,000
Executive/upper management11%$729,000
  • 85% of fraudsters exhibited at least one behavioral red flag, and 50% exhibited multiple
  • Six behavioral red flags have been the most common in every ACFE study since 2008:
    • Living beyond their means
    • Financial difficulties
    • An unusually close association with a vendor or customer
    • Excessive control issues or an unwillingness to share duties
    • A recent divorce or other family problems
    • A “wheeler-dealer” attitude

Fortunately, there are steps you can take to reduce your organization’s risk of fraud. Take this online questionnaire for a simple yet powerful test of your organization’s fraud health, and then follow these four tips for preventing fraud at your organization.

In addition, our Fraud Checkup service is designed to help identify fraud risks for your organization and provide best practice solutions to help you mitigate those risks. You can learn more about this service here.

Nathan Salsbery

Nathan is a partner in the Colorado Springs and Denver offices and serves as the firm’s Executive Vice President for the West region. For over 15 years, Nathan has provided various assurance and consulting services to numerous types of nonprofit organizations, and is a certified fraud examiner. Nathan serves on the Christian Leadership Alliance Advisory Council. He also has nearly 10 years of nonprofit industry experience serving part-time as Associate Pastor at his local church, and has earned a Master of Divinity degree with an emphasis in church and ministry leadership.

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