05.11.2016

Non-Profit Fraud is a People Problem

Topics include:

Fraud is bad. But if you run a non-profit, fraud is more than

Flickr Creative Commons Gotcredit.com
Flickr Creative Commons Gotcredit.com

bad, it can destroy your credibility, which scares off your donor base and cripples your efforts to fulfill your mission. That was the message of the presentation at the Capital Area Non-profit Lunch-and-Learn this past Tuesday. Billy Petty and Michele Heyman of Heyman & Associates, PLLC, spoke on how to “Recognize and Respond to Internal Fraud and Theft Risks and Occurrences.” They covered a lot of information about how to protect your assets. But as an HR person I was fixated on the fact that even people you would never suspect sometimes are hit with circumstances that inspire them to steal. Non-profit fraud is a people problem. So unless the busines-savvy board members, as well as the executive director, carefully evaluate how they handle HR and business processes, they may permit or even unwittingly encourage fraudulent behavior.

Let’s say, for example, that you have an employee who has been with you for a long time. They never go on vacation. They never delegate anything. Because of their longevity and apparent dedication, you never cross-check anything they do. You don’t require them to train others and you accept the push-back they give you on questions. What if they have access to money—either a bank account or credit cards or financial information of donors. Sometimes, maybe, they seem a little weird or controlling about their fiefdom, but you just chalk it up to passion. Maybe last year they would never have stolen anything from you, but something’s come up, something’s changed, and they could get away with a lot of money before you ever find out what happened. According to a 2014 Non-Profit Times article, the average loss in a non-profit fraud case was $600,000.

The fact is, that situation is a perfect setup for internal fraud. That doesn’t mean you should look askance at any employee with signs of dedication, longevity or a slight control bias. It does mean you put in place measures so that they can’t control things in a risky way. Make sure, for example:

• Employees always make purchases and receive payments to a bank account and address that belongs to the non-profit, not to their home address.

• Cross train employees on one-another’s jobs. This makes work transparent and simultaneously ensures that if someone suddenly has to have surgery or gets a new job, you won’t be in the lurch.

• If you can’t afford an extra person for multiple jobs, outsource some. Hire a professional bookkeeper, for example, rather than having one person handling bookkeeping, donor development, admin and more.

• Use technology to create checks and balances. Can donors donate directly into the organization’s bank account? Could you use an automated book keeping or payroll system? Can you employ an auditing software? There are a lot of technologies that both keep mundane tasks off employees’ plates and keep the money out of their hands.

The last thing any non-profit needs is a situation where their ability to manage, protect and allocate donor funds is called into question. And no matter how great an employee has been, it does both you and that employee a service to protect them from the opportunity that leads to temptation. Managing employees and making sure you have checks and balances in place that keep operations transparent and above board is crucial. We work with a lot of non-profits and we serve on non-profit boards. We know what needs to happen. If you’d like help, call us!

 

We work with companies on a project basis or on retainer, providing a custom level of HR help designed for your business, with offices in Austin, San Antonio, Dallas and Houston. Contact me at Caroline@valentinehr.com or call (512) 420-8267.

We work with companies on a project basis or on retainer, providing a custom level of HR help designed for your business, with offices in Austin, San Antonio, Dallas and Houston. Contact me at Caroline@valentinehr.com or call (512) 420-8267.