D.C. Charity for Victims Becomes Victim of Fraud

August 24, 2009

We all want to believe the best of people, especially in the non-profit sector and especially our own staff and coworkers but it pays to maintain some skepticism and remember that good internal controls protect everyone.  Non-profit charities are motivated to put as much funding towards program missions as possible and may view additional administrative support as a luxury better left to profit-making corporations .

Internal controls by nature work in opposition to efficiency. It would be most efficient for me to write the check myself, sign it and mail it out but there is no control there and no protection either to myself or the organization. If something goes awry, I’m the nearest person of interest even if I’m innocent. If I’m not so innocent and something in my life creates the motivation for me to take off with money, the organization is left in the lurch. Internal controls are not convenient and take time and effort but go a long way in protecting the organization and its employees both from temptation and opportunity, as well as from undeserved blame.

One of the most effective internal controls is separation of incompatible tasks. Many organizations operate with small offices and minimal staff but the smaller you are, the more important finding a way to create this separation becomes. It may be as simple as getting a non-accounting staff to open mail or having the bank statement mailed to the executive director directly. Get creative and think about ways to offset who has access to what.  Spend some time sorting out where  weak spots might be; where oversight could be improved.

We don’t want to believe it could happen to us and certainly not within a charity where everyone appears to be dedicated to the mission, but it does happen. Just this May, a national non-profit that helps victims of child abuse made headlines due to a payroll scam conducted by three of its employees. The employees were getting themselves several extra paychecks. A spot check would reveal the check was for the proper amount, but would it have revealed there were extra checks of that amount? Would your organization have caught this?

One of our objectives for our new blog is to bring attention to  frauds relating to non-profits. Being aware that fraud does occur may help to motivate maintaining those pesky controls that sometimes just feel like they get in the way.  Controls take effort and may even cost more but they will cost less than being the victim of fraud.