Nonprofit Resources

What’s Your Organization’s Fraud Risk?

The term “fraud” has many interpretations and applications in today’s culture, from health care fraud and identity theft to insider trading and much more. The one common element, however, is that all fraud involves a violation of trust.

Unfortunately, the damage from that volition of trust is most acute at nonprofits, which by their nature and purpose are part of the public trust. Fraud can wreak tremendous damage not just on a nonprofit’s finances, but on its reputation and donor confidence as well. Yet the trusting nature at many ministries and other nonprofit organizations leaves them more vulnerable to fraud.

Occupational Fraud 2024: A Report to the Nations from the Association of Certified Fraud Examiners (ACFE) includes some sobering statistics to be aware of:

• Nonprofit organizations accounted for 10% of all reported occupational fraud cases in the study and suffered median losses of $76,000
• The median loss for religious, charitable, and social services organizations was $85,000
• Most fraudsters are first-time offenders with clean employment histories; 87% had not previously been disciplined by an employer for fraud-related issues
• The top fraud schemes at organizations with fewer than 100 employees were:
  • Corruption – 44%
  • Billing – 31%
  • Check and payment tampering – 23%
• The top three internal control weaknesses leading to fraud were:
  • Lack of internal controls – 32%
  • Override of existing controls – 19%
  • Lack of management review – 18%
• While operations and accounting were the most common positions for fraud, schemes by executives resulted in the highest losses by far:

Position	% of Fraud Cases	Median Loss
Operations	14%	$100,000
Accounting	12%	$208,000
Executive/upper management	12%	$75,000
Sales	9%	$793,000

• At least one behavioral red flag was identified in 84% of the fraud cases in the 2024 ACFE report, and multiple red flags were seen in 52% of cases
• The eight most common behavioral red flags in the ACFE report were as follows:
  • Living beyond their means – 39%
  • Financial difficulties – 27%
  • An unusually close association with a vendor or customer – 20%
  • Excessive control issues or an unwillingness to share duties – 13%
  • Unusual irritability, suspiciousness, or defensiveness – 12%
  • A “wheeler-dealer” attitude involving shrewd or unscrupulous behavior – 12%
  • Bullying or intimidation – 11%
  • A recent divorce or other family problems – 10%

Fortunately, there are steps you can take to reduce your organization’s risk of fraud. Take this online questionnaire for a simple yet powerful test of your organization’s fraud health, and then follow these four tips for preventing fraud at your organization.

CapinCrouse also offers informative free resources and helpful fraud and forensic accounting services to help your organization protect against fraud and respond effectively if it occurs.

Please contact us with questions or to learn more about how we can assist you.

This post has been updated.

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