Fraud is a major issue for many nonprofits, including both electronic payment fraud and paper check fraud. For Example, in March of 2014 the director of facilities at the Woodruff Arts Center in Atlanta embezzled more than $1.1 million with a check scam, according to the Nonprofit Times. This is just one of the many instances of fraud that affect nonprofits. Citing a study from the Association of Certified Fraud Examiners, the Nonprofit Risk Management Center reports that fraud accounts for approximately 5 percent of many nonprofit organizations' revenue.
What makes a nonprofit vulnerable?
Because nonprofits have to put their trust in others for their funding and success of their programs, they are attractive targets for thieves and people who want to commit fraud. Donations coming in are often handled by someone who is a volunteer and can easily take advantage of the organization by keeping a portion of the donations for themselves.
In addition to this, since many directors and executives at nonprofits aren't financial experts, they most likely joined the nonprofit to help the organization fulfill its goal. Because these people are focused on other things, they might not notice the money that was stolen for a while or at all.
The Nonprofit Risk Management Center states nonprofits that distribute grants, scholarships and other awards are targeted simply because of the way they function, opening another way for a nonprofit to become susceptible to fraud.
Because nonprofits are so susceptible, many take fraud prevention steps. In general, it is a good idea for a nonprofit to vet the people it's working with. Here are some things to consider:
- Utilize one payment processing company
When you put everything under one roof, it's easier to manage. Donations and payments a nonprofit deals with are already complicated. For that reason, it's smart to find a company that can handle all electronic payment processing and paper check processing. That way, the nonprofit's finances will be easier to track.
- Do background checks on volunteers and employees
While not all nonprofits can afford to do background checks on their volunteers, every single organization should make a point to do them on employees, especially employees that have anything to do with finances.
- Create and maintain a fraud policy
If a nonprofit doesn't already have a fraud policy, it should make one. Having a policy will clear up anything employees or volunteers find unclear. Make sure to go through the policy with anyone who's working with the organization.
- Install a system of checks and balances
In some cases fraudulent action is committed by people you trust. To prevent this, make sure to have some system of checks and balances. That way, no one person is in charge of anything.
Putting a few preventative measures in place will help ensure that your nonprofit doesn't become a victim of fraud, and if it does, you'll be able to find out quickly before too much damage is done.
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