What’s Your Organization’s Fraud Risk?
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.
The Occupational Fraud 2022: Report to the Nations from the Association of Certified Fraud Examiners (ACFE) includes some sobering statistics to be aware of:
- Nonprofit organizations accounted for 9% of all reported occupational fraud cases in the study and suffered median losses of $60,000
- The median loss for religious, charitable, and social services organizations was $78,000
- Most fraudsters are first-time offenders with clean employment histories; 83% have never been punished or terminated by an employer for fraud-related conduct
- The top fraud schemes at organizations with fewer than 100 employees were:
- Corruption – 24%
- Billing – 13%
- Check and payment tampering – 10%
- The top three internal control weaknesses leading to fraud were:
- Lack of internal controls – 29%
- Override of existing controls – 20%
- Lack of management review – 16%
- 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|
- At least one behavioral red flag was identified in 85% of the fraud cases in the 2022 ACFE report, and multiple red flags were seen in 51% of cases
- The eight most common behavioral red flags in the ACFE report were as follows — and at least one of these was identified in 76% of all cases:
- Living beyond their means
- Financial difficulties
- An unusually close association with a vendor or customer
- Excessive control issues or an unwillingness to share duties
- Unusual irritability, suspiciousness, or defensiveness
- Bullying or intimidation
- A recent divorce or other family problems
- A “wheeler-dealer” attitude involving shrewd or unscrupulous behavior
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.
In addition, the CapinCrouse Fraud Checkup™ is designed to help identify fraud risks for your organization and provide best practice solutions to help you mitigate those risks. You can learn more about this service here.
This post has been updated.
Nathan is a Partner in the Colorado Springs and Denver offices and serves as the firm’s Executive Vice President for the West region. For over 20 years, Nathan has provided assurance and consulting services to numerous types of nonprofit organizations, and he is a certified fraud examiner. Nathan serves as a Board member and Treasurer for the Christian Leadership Alliance and as Board Chair for a private K-12 Christian school. He also has 10 years of nonprofit industry experience serving on staff part-time as Associate Pastor at his local church, and has earned a Master of Divinity degree with an emphasis in church and ministry leadership.