Implementing systems and actions meant to help your nonprofit organization prevent and eliminate fraud are essential to its ongoing financial and organizational health. Last week, we took a look at six important facts you should know about fraud that will help you take actions against it and implement effective financial reporting in the process. Click here to learn more. Beck and Company’s Certified Public Accountants and Business Advisors have also shared some tips and steps for preventing fraud in the past that are an important starting point in fraud prevention. Today, we will look at some additional actions you can take to further reduce fraud risks to your organization through actions needed within the board of directors. View the other prevention tips as a starting point, and then keep reading for additional tips and help.
Beck and Company CPAs offer auditing services to carry out nonprofit financial audits at your organization that can provide you with an extensive examination of financial information. These audits will give you a closer look at possible areas of fraud within your organization so that you can be intentional in dealing with them. We would be more than happy to help your organization in this way so you can help your organization maintain its wellbeing and prevent abuse.
Four Conditions that Promote Fraud:
Before we look at additional tips for preventing fraud, it is important to note the four factors or conditions that, when present in your organization, lead to fraud occurring. Be sure you are aware of the existence of these conditions so you can stop them both within the organization and the board of directors. They are:
- Incentive (personal, professional, and financial gains)
- Opportunity (ineffective financial reporting or lack of reports that allow for easy access and actions with little or no knowledge being able to be tracked by others)
- Rationalization (justification of need or ability to commit abusive or fraudulent act)
- Capability (in a position of trust and access to funds that make it easy to commit fraud)
Tips for Preventing Fraud within the Board of Directors at Nonprofits
Board members are not exempt from having the potential to commit fraud. In fact, they often have more access to information and funds in addition to being the most trusted within an organization. They can use this power and the above four conditions that are often most true of the board in order to take advantage of the nonprofit organization. Here are some tips to help ensure the board, too, is upholding financial transparency and acting with integrity even with more power and access available to them.
- Institute a board member code of conduct and ethics policy
- Create and use a conflict of interest policy and require all board members and senior staff alike to sign this disclosure statement on an annual basis
- Require staff and board member background checks including for those in existing roles (especially finance staff and those in the most sensitive positions)
- Establish a formal audit committee with a charter laying out specific duties and tasks. Beck and Company CPAs would be pleased to help you in this process and as the auditors.
- Enforce a formulated gift acceptance policy for all gifts
- Monitor performance throughout the year of internal control policies and procedures by requiring finance staff to report results of reviews of internal control processes and use effective financial reporting
- Engage an independent accounting firm (such as Beck and Company CPAs) to evaluate controls as an agreed-upon procedure that occurs regularly
These board fraud prevention tips are only one area that needs fraud prevention. Stay tuned next week for tips that span across the financial domain of the organization. Beck and Company CPAs can help with nonprofit financial audits that will give you the financial transparency you need as an organization to prevent abuse within the board and nonprofit. Please contact us for assistance.