Not-for-profits curb fraud through improved surveillance

Greater surveillance has paid off, at least for the not-for-profit sector. A report out this morning reveals that incidences of fraud in the not-for-profit sector have fallen over the past two years and involves relatively small amounts of cash or inventory when compared with large public and private companies.

And of those NFPs that did get burnt, it was not the volunteers who are helping themselves. It is paid employees.

A bi-annual survey into the sector conducted by Professor Peter Best from the University of Southern Queensland and accounting firm BDO found that 15% of respondents reported suffering a fraud in the past two years, compared with 16% in the 2008 survey and 19% in the 2006 survey.

One reason seems to be that the not-for-profit organisations have increased its awareness of fraud risks and improved their internal control environments, with 80% of respondents having reviewed internal controls over the past two years.

Yet only 14% see it as a problem for their organisation (down from 20% in 2008) leading the researchers to conclude the sector was not going far enough in tackling fraud.

Professor Best, Head of the School of Accounting, Economics and Finance at the University of Southern Queensland, said: “For the first time we asked respondents to assess the potential impact of a fraud on their organisation and found 42% of respondents perceived the impact of a fraud on their organisation of $50,000 to $100,000 would be catastrophic,” he says.

He says the main lessons for the NFP sector are for the Board to practice strong governance and risk management, establish a fraud control policy, implement and promote a strong ethical culture through a code of conduct, establish a whistle-blower policy and establish and monitor internal controls.

The survey found that the profile of the fraudster was usually in his or her 30s to 40s and holding a paid non-accounting position. Interestingly, volunteers were involved in fraud in only 12% of cases.

The reasons people turned to fraud were gambling debts, financial pressures and maintaining a lifestyle.

Most fraud was not communicated to the police because they feared loss of donations through adverse publicity.

The size of the large fraud was also low with an average value of $26,132 compared to the 2008 study that showed the average fraud among large public and private organisations was $291,515.