When it comes to preventing fraud, all nonprofits can benefit by ensuring they have a strong and continuous fraud protection plan in place. By doing this, you are ensuring that employees, board members and donors know that your nonprofit is working to continue to be fraud free. Here are some valuable ways you can reduce opportunities for fraud at your organization.
1. Keep an eye on your budget.
One important tool for managing fraud is to ensure you are monitoring your budget weekly for any variances that might occur. Let your board also be another set of eyes for you in regard to your budget and potential fraud. At your monthly board meetings, let board members have time to review your budget. Pro-actively ask them to review revenue and expenses and evaluate actual results compared with the projected budget levels.
Tip: Board members can also be an extra set of eyes to ensure that funds whose uses are restricted — by grants, for example — are used only for those purposes
2. Keep your payroll/and employees current.
Payroll is another area where fraud can occur. A common fraud is checks paid to ghost employees. What that most often involves is checks made out to employees who are no longer with the company. A ghost employee could also be a fictitious employee who is created in the payroll records. Nonprofits should coordinate human-resource and finance functions to ensure that, when employees leave, they are removed from the payroll. Only the names of current employees should be on a payroll, with limits placed on the number of people authorized to add or eliminate names from the payroll.
Tip: Review your employee records and ensure there are not duplicates or names you don’t recognize that don’t match a social security number. Make sure there are not duplicate social security numbers as well.
3. Put policies in place.
Foster an environment of awareness, information, open communication, kindness, and trust. Put policies in place, including whistleblower policies and HR policies, and keep your employee handbook up-to-date. Make sure you have a formal fraud policy in place and that it is reviewed with all employees on a twice-yearly basis.
Tip: Encourage employees to report any unusual activities or concerns they may have. Make sure you have different ways they can report a concern or fraud including a dedicated email address, phone number or even a suggestion box.
4. Talk with your employees and department heads.
Stay aware, and don’t be afraid to talk about fraud (before the money walks out the door). Make sure any departments who are managing separate budgets are watching for variances or shifts in budget without explanation. Have a crisis management plan and disaster recovery plan that include specific steps you will take if you suspect fraud at your nonprofit, or have a fraud occur.
Tip: Make sure your managers encourage a no-fraud code of contact and make sure all your employees know there is no retaliation for reporting issues.
5. Ensure your technology is a partner in your fraud prevention.
The right technology can help an organization be both proactive and reactive when it comes to detecting and deterring fraud. Promote sound accounting policies and procedures. Support and promote proper segregation of duties. Create thorough and accurate audit trails. A true fund accounting system can provide you with real-time budget views, internal controls for staff roles, and strong reporting on grant dollars usage.
Learn how MIP Fund Accounting™ can mitigate nonprofit fraud using functions already built into the software.