While performing audits of nonprofits, we work with management of organizations to identify risks that may cause the financial statements to be materially misstated due to fraud. Sometimes these conversations start with the executive director or other member of the management team claiming they have no risks of fraud, because their employees are all committed to the mission of the organization and would never steal from them. Maybe their bookkeeper has been there for years, and they have complete trust in him/her.
Unfortunately, that is an environment that can be conducive to fraud. When management is unable to look at the situation dispassionately, without putting personalities and personal feelings into it, a fraud can occur. All too often an embezzlement of thousands or hundreds of thousands of dollars is uncovered and it is the trusted bookkeeper or long-time employee who hatched the scheme.
Strong organizations identify the risks of fraud and put controls in place to mitigate those risks. Board members and management evaluate the controls to be certain they are being followed. They ask questions and investigate things that don’t look right. They understand the controls protect their employees as well as the organization. Many nonprofits use outside consultants to perform an internal control examination to address process weaknesses – before the shock of a fraud is uncovered.