Fraud in Non-Profits?!

Demystifying Valuation, Economic Damages + Forensic Accounting

It can’t be. After all, these organizations are meant to help those less fortunate than ourselves. Why would anyone commit fraud against a non-profit organization?

Unfortunately, because they can is too often the answer. Many non-profit organizations simply don’t have the staff or the budget to implement proper internal control procedures to help mitigate the risk of fraud. Sometimes it is those that you would least expect to commit the fraud that do.

Recently a minister in Tulsa, OK pleaded guilty to three counts of wire fraud and one count of subscribing to a false tax return. The minister admitted to personal use of approximately $933,000 of funds donated to build a community center. The funds were used on automobiles, liquor, jewelry, hotels, gambling and renovations to his personal home.

In September, a husband and wife in Los Angeles County were charged with embezzlement from a nonprofit agency meant to help abused and neglected foster children. The executive director and assistant executive director of the Little People’s World agency are charged with 22 counts of embezzlement and misappropriation of public funds. The couple “borrowed” more than $460,000 from the agency over a period of several years to fund their own investments and vacations.

Management, including board members, of non-profits need to make fraud prevention a priority. Oftentimes management of non-profits are so focused on the mission, as they should be, that they become too busy or unconcerned about something they don’t think could happen. And when it is management that is committing the fraud, those around them may be too intimidated to speak up. But speak up they must.

Non-profits should be training their volunteers on the “red flags” of fraud. Why does the executive director take so many trips? How does he/she afford that new car every two years? Was that jewelry a gift? And they should be directed as to whom they should speak regarding their concerns.

We all want to be trusting, especially when working with others for a common cause. But we must also be vigilant to help protect that cause.

By Melissa E. Loughlin-Sines, CPA, CFE, CVA, CFF, ABV