How to Prevent Fraud in a Non Profit Organisation
Non-profit organisations can easily be victims of embezzlement and employee fraud because of lax financial controls. Often this type of fraud is not reported or prosecuted because of concerns over the negative affect it could have on donors finding out that their funds were misappropriated.
There are however, steps that can be taken to prevent internal fraud. Having a sound financial system in place can limit opportunities to commit fraudulent activities as well as implementing the following procedures.
- Expenditures over a predetermined amount should have two signatures on every cheque and two authorisations on cash disbursement.
- All cheque and cash payments must be accompanied by an invoice justifying payment.
- Do not pre-sign cheques. Many non-profit organisations do this to avoid delays when a second signatory cannot be, contacted. This is an invitation for an unscrupulous employee to take one of those cheques for personal use.
- A single individual should not be responsible for receiving, depositing, recording and reconciling the money coming into the organisation. Additionally, a single person should not be responsible for authorising payments, distributing funds, and reconciling bank statements (money going out). If the organisation does not have sufficient staff on hand to segregate these duties, a board director or officer should reconcile the bank and credit card statements.
Finally using an independent accountancy practice to carry out a stringent external audit can be helpful tool combating internal fraud prevention and ensuring that anti-fraud measures are being followed and are effective.
