Tuesday, November 18, 2008

Non Profit Fraud Prevention

Some recommendations from the Independent Sector's Panel on the Nonprofit Sector (2005)

Start Accountability at the Board Level: Improving the quality of the board could improve accountability and lessen fraud. Essential tasks may be undertaken by individuals with little financial expertise and no training in the design of appropriate controls against errors or fraud. Without financial expertise at the board level and little, or limited, supervisory capabilities at the operation level, a steady flow of cash donations become a magnet for fraud. Require independent directors to serve on the Board and make sure that someone other than the treasurer reviews financial statements. Do not let the nonprofit's account serve as a member of the Board.

Create an audit committee on the Board to deter or detect financial mismanagement and other fraud within the organization.

Don't just assume an atmosphere or trust--develop strong policies and procedures for fiscal management.

Prohibit personal loans to board members and nonprofit executives.

Management should take a strong response to alleged or suspected fraud.

Conduct extensive background investigations on the Board of Directors, executives, staff and volunteers.

Add accountability by providing orientation to volunteers about thefts and increasing training efforts.

Develop authorization procedures for purchase orders, invoicing, and payments.

Separate the duties of authorizing, purchasing, receiving, shipping, and accounting.

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