Fight Back Against Internal Fraud
Diane Glover
Oct 27, 2017
Internal fraud drains more than $3.7 trillion annually from global businesses, according to recent estimates, and not-for-profit organizations are not exempt.
The median loss suffered by a not-for-profit group victimized by fraud was $100,000, according to the 2016 Report to the Nations by the Association of Certified Fraud Examiners (ACFE).
Organizations can experience pilferage from volunteers, vendors and other sources, but employees account for the highest losses. Employee offenses include fraudulent insurance claims, unauthorized time off and theft of proprietary information. Crimes can be as simple as stealing supplies or as complex as sophisticated financial statement fraud.
More specifically, fraud by managers and key executives generates the highest dollar losses because these employees are in a good position to falsify financial, credential, work-related or test-related documents for personal gain.
What can your organization do to prevent theft? The report by the ACFE found these measures are effective:
Improve internal controls. For example, do not allow the same employee to keep books, collect funds, write checks and reconcile bank accounts. Arrange for monthly bank statements to be delivered unopened to the head of your organization, who should review them for unusual transactions, such as declining deposits and checks to unfamiliar parties.
Conduct background checks on new employees.
Arrange for internal fraud audits by the organization’s outside accountants. CPAs can conduct regular independent reviews of cash accounts, bank statements and other items to detect criminal activity. Surprise audits are often an effective, yet underutilized tool in the fight against fraud.
Be willing to prosecute perpetrators. Most not-for-profit and for-profit organizations that are victimized by fraud report the cases to law enforcement. The main reasons some people took no legal action: They were afraid of bad publicity; reached a private settlement; wanted closure; or considered internal punishment sufficient.
Provide ethics training for employees. Educate staff members about the possible sources of fraud and consequences, such as the loss of jobs, raises and profits.
Institute anonymous fraud reporting mechanisms, such as hotlines. Fraud is commonly discovered through tips from employees, vendors, members or other sources. These people are frequently in a position to see violations of an organization’s standards or excessive personal spending by a colleague.
Install workplace surveillance devices. For example, a video camera monitoring a place in your building where theft is suspected.
Look for behavioral red flags including the perpetrator living beyond his or her means and having financial difficulties. They can also involve an unwillingness to share duties, a “wheeler-dealer” attitude, divorce or family issues, addiction problems, refusal to take vacations and an unusually close association with vendors or customers.
Take a zero tolerance stand on theft. With a few basic procedures in place, internal fraud can be significantly reduced — or even eliminated — so your organization can flourish.
If you are concerned about the internal fraud at your organization, contact Janis Bergeron at 513-858-6040. Kirsch CPA Group can review your structure and help you develop a set of internal checks and balances that protect your not-for profit or business
About The Author
As the Manager of Practice Growth, Diane focuses on the market awareness and growth of Kirsch CPA Group…
Tags
Sign Up for Email Updates
Related Articles
Does your Business Deduct Research & Development Expenses? Major Changes Impact 2022 Taxes…
- 11-09-22
- Elizabeth Michalak
Why Have Your Financial Statements Reviewed (Even When Not Required)
- 10-17-22
- Kirsch CPA Group
Case Study: Strategic Accounting Support from Acquisition to Sale
- 09-20-22
- Kirsch CPA Group
Prevent a Poorly Structured Chart of Accounts from Hiding Your Profitability
- 01-06-22
- Nick Roell
Entrepreneurial Mindset: Kirsch CPA Group Sets a Framework for Growth
- 10-28-21
- Kirsch CPA Group
What Your Numbers Are Saying: Are You Listening?
Part 2: How Attractive Is Your Balance Sheet?
- 07-19-21
- Kirsch CPA Group
What Your Numbers Are Saying: Are You Listening?
Part 1: Do You Know Your Profitability?
- 06-09-21
- Kirsch CPA Group
Using Cash Flow Forecasting to Avoid Problems & Grow Your Business
- 04-07-21
- Kirsch CPA Group
Selecting the Right Payroll System for Your Construction Business
- 04-01-21
- Kirsch CPA Group
Self-Employed May Be Eligible for COVID-Related Tax Breaks for 2020
- 03-17-21
- Kirsch CPA Group
COVID-19 Relief: Overview of the New American Rescue Plan Act for Individuals
- 03-17-21
- Kirsch CPA Group
COVID-19 Relief: Business Overview of the New American Rescue Plan Act
- 03-17-21
- Kirsch CPA Group
Opportunity Zone Investments: A Tax Deferral Opportunity You May Have Overlooked
- 02-17-21
- Kirsch CPA Group
The Status of Temporary COVID Tax Relief Measures After the New Law
- 01-21-21
- Kirsch CPA Group
8 Accounting Practices for a Financially Healthy Construction Business
- 01-07-21
- Kirsch CPA Group
Appropriations Law Adds Some Business Tax Breaks and Extends Others
- 01-07-21
- Kirsch CPA Group
Contending With the Patchwork of State Requirements for Nonprofits
- 12-17-20
- Kirsch CPA Group
Employee or Independent Contractor? The Rules May Be Getting Simpler
- 11-12-20
- Kirsch CPA Group
Do the COVID-19 Extended Deadlines for Health Plans Still Apply?
- 11-12-20
- Kirsch CPA Group
Using Remote Workers? Protect Sensitive Company Data from Exposure
- 10-28-20
- Kirsch CPA Group
What You Need to Know About the Deferral of Payroll Tax Obligations
- 09-15-20
- Kirsch CPA Group
Hobby or Business? How to Treat COVID-19 Sideline Activities for Taxes
- 09-15-20
- Kirsch CPA Group
Monitor These 3 Things as COVID-19 Changes Your Nonprofit’s Priorities
- 08-11-20
- Kirsch CPA Group
FASB Offers Reprieve from Updated Lease and Revenue Recognition Rules
- 07-23-20
- Kirsch CPA Group
COVID-19 Crisis May Affect Tax Angles for Rental Property Losses
- 07-10-20
- Kirsch CPA Group
Last-Minute Strategies for Businesses that Deferred Filing Tax Returns
- 07-01-20
- Kirsch CPA Group
Can Your Business Survive and Even Thrive in These Trying Times?
- 06-18-20
- Kirsch CPA Group
Five COVID-19 Obstacles a Construction Company Needs to Navigate
- 06-12-20
- Kirsch CPA Group
Cash Flow Tip: Postpone Payment of Certain Federal Employer Payroll Taxes
- 04-20-20
- Sue Schloemer
Tax Filing Deadline Remains April 15 – Payment Due Extended to July 15
- 03-19-20
- John Kirsch
8 strategies to help you adapt to economic down turn without layoffs
- 02-24-18
- Diane Glover
Which Research Activities Qualify for the Qualified Small Business Tax Credits
- 07-17-17
- Diane Glover