Insights: Article

5 Fraud Prevention Tips for Nonprofit Board Members

By Liz Johnson

May 21, 2018

Most professionals are approached about serving as a board member for a nonprofit at some point in their career. It’s easy to immediately say, “yes!” Before committing, it’s important to find out the position’s expectations and responsibilities.

Donating your time and talents to a board isn’t all recognition and roses. There’s also a level of personal liability for board members. Ignorance to fraud risks without action can include removal from the board, damage to reputations and civil damages for negligence. The mission of the organization may sing to your heart strings, but sometimes the nicest people who appear to live for the mission create unimaginable havoc, and you can’t turn a blind eye.

Stakeholders typically expect board members to have a duty of care regarding oversight for the organization, understand the organization’s fraud risk and establish committees with responsibilities for managing fraud risk. These duties become even more all-encompassing if you find yourself on the audit committee. Then your responsibilities can include such roles as overseeing audit functions, monitoring internal controls, code of conduct compliance, investigating/initiating the investigation of allegations of fraud and monitoring adequacy of insurance protection.

Nonprofits can be highly susceptible to fraud for a number of reasons. One example is that nonprofits tend to have smaller teams and segregating duties is more difficult. There might not be enough people cross-trained to fill in and cover positions, in addition to completing regular review procedures. Another factor is that nonprofits often have a lot of cash—physical cash—coming through the door as donations. Physical cash can be hard to secure even with strong internal controls.

If you find yourself still saying, “yes,” what can you do to proactively prevent fraud and protect yourself? Here are five fraud prevention tips every board member should consider:

  1. Tone at the top
    Create an environment and culture emphasizing ethical behavior.
  2. Internal controls and review procedures
    Try to involve more than one individual in all accounting functions and make sure an independent individual is reviewing financial information such as bank and credit card statements.
  3. Policies and procedures
    Implement accounting processes and procedures as well as a fraud policy. The Association of Certified Fraud Examiners (ACFE) has a sample fraud policy on their website.
  4. Employee dishonesty coverage
    Review insurance policies for employee dishonesty coverage and consider the cost benefit of increased premiums for protection if something were to happen.
  5. Anonymous third-party reporting systems
    The ACFE has found that 40 percent of frauds are uncovered by anonymous tips, showing the importance of having an avenue for employees to report concerns without fear of retribution.

Concerned about fraud at the nonprofit you serve? Reach out to an Eide Bailly professional today!

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