Charities & not-for-profit

Fraud Alert: Charities and not-for-profit organizations

The average organization loses 5% of revenues each year to occupational fraud.* Is your business at risk?

Fraud happens. It doesn’t matter what industry you’re in, or how big—or small—your business is, today’s fraudsters don’t discriminate. As a charity or not-for-profit organization (NPO), you’ve likely heard of a number of frauds that have occurred in your industry. In response to this, Grant Thornton LLP has put together a list of preventive and detective measures the Board can take to help reduce the risk of fraud and financial exposure.

Classifying occupational fraud 

Occupational fraud, also known as internal fraud, occurs when an employee, manager or executive commits fraud against his or her employer.

Despite advancements in technology and concealment tactics, the methodologies used in occupational frauds generally fall into clear, time-tested categories. Under the Association of Certified Fraud Examiners’ Occupational Fraud and Abuse Classification System, also known as the Fraud Tree, these types of frauds fall into three main categories:

1. Asset misappropriation

  • theft of cash on hand
  • theft of cash receipts
  • fraudulent disbursements

2. Corruption

  • conflict of interest
  • bribery
  • illegal gratuities

3. Financial statement fraud

  • asset/revenue overstatement
  • asset revenue understatement

The red flags

An important component of fraud prevention and early detection is learning how to spot the red flags—issues that require further investigation. While red flags can take a variety of forms, the following is a list of the more common examples:

  • weak internal control environment
  • incomplete, missing or non-standard documentation used in business dealings
  • track record of sloppy, secretive or irregular accounting activity
  • exclusive or preferred treatment of vendors, often under the guise of sole-source contracts
  • management decisions made primarily by an individual or small group
  • frequent changes in external auditors
  • previous complaints, allegations or concerns over club or employee conduct
  • conflicts of interest are the norm rather than the exception
  • key individual and/or organizational

Read the full report to learn more about protecting your charity [ 257 kb ]

Charities and not-for-profit organizations fraud alert npo cover
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