Fraud dictionaryWell I hope I have your attention now!

I’ve chosen my words to be provocative but the ‘fraud triangle’ says that for fraud to occur the following 3 elements must exist

  1. motivation
  2. rationalisation and
  3. opportunity.

Therefore if fraud is about ‘opportunity’ then it happens because businesses allows these opportunities to exist. So let’s explore this a bit further.

Why talk about ‘not for profit’ fraud

I’ve been prompted to write about fraud having read two articles this last week about our vulnerabilities, as individuals and businesses (commercial and not for profits (NFP)).

The first article reported on a worker who stole $150,000 from a long-established NFP over a period of seven years. While the second article suggested that 1 in 4 Australians are victims of identity theft or fraud.

What do these articles suggest – “its human nature to trust and we don’t do enough, as individuals and in our businesses, to protect our valuables.”

We need to look at what ‘opportunities’ we are giving our staff that ‘tempt’ them to defraud us.

Fraud – Not for profits ripe for the picking

Some argue that NFP are more vulnerable to fraud because they

  • operate on, and support a culture of ‘trust’ to support their mission,
  • attract and rely on a number of revenue streams which are difficult to control (i.e. donations),
  • lack or have weak internal business controls,
  • have limited business and financial acumen and finally
  • rely on volunteer boards.

If you can relate to even one of these factors then it is time to look at your business systems, checks and controls. Watching where you money or assets are ‘at’ is key to personal and business survival.

Some ideas for action … you might review

1. Set the tone of the company from the top – reinforce expectations at induction, meetings and with ongoing education. Ensure your Policy and standards identify the standard you expect for all staff to understand. Clearly spell out the authorisation authority of key staff – what authority to they have to spend money/dispose of assets – what are their limits.

2. Ensure that you have adequate internal controls that provide for

  • segregation of incompatible duties – ensure more than one staff member is involved in key transactions wherever possible.
  • where the size of your business is too small for this segregation of duties ensure you put in place independent checks of transactions,
  • ensure there is adequate security of physical assets
  • authorisation paper trail is in place.

3. Know your employees. This means checking on their credentials and claims prior to employment and then getting to know their general demeanour so that you might be able to spot any changes in behaviour that might be worth investigating.

4. Plan and conduct audits of key business functions at least annually and as necessary.

Consider implementing an anonymous reporting system for staff and clients to raise any concerns. This provides a safe system for people with concerns to notify you, and enables you to follow-up and investigate.

5. Establish approved vendor/consultant listings – this will negate the presentation/processing of phony invoices.

6. Ensure staff in key positions take their leave as accrued. This ensures that other staff have to take over and review their work at least every year. It might also be prudent to rotate staff through functions.

7. Implement a robust accounting system that has ‘checks and balances’ embedded in it.

These are just some of the ways you can manage your organisation and limit the opportunities for fraud.

Background Reading

NCOSS – Information Sheet – Protecting your organisation against fraud (download)

BDO 2014 Not For Profit Survey

Finally, why not consider taking part in the 2016 BDO Not For Profit fraud survey the survey closes on 20 Oct 2015.

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