Fraud, waste, and abuse can severely impact not-for-profit organizations' financial health and reputation. Understanding and mitigating these risks is essential for maintaining public trust and ensuring the sustainability of your mission.
Highlighting the latest fraud trends and statistics, Occupational Fraud 2024: A Report to the Nations, from The Association of Certified Fraud Examiners (ACFE), paints a grim picture of the current fraud landscape for not-for-profits (NFPs). NFPs are susceptible to various types of fraud, waste and abuse, and the April 2024 report outlined the top vulnerabilities and best practices for fraud prevention and detection.
A Global Perspective on Fraud
The report analyzed over 1,900 cases from 138 countries, with occupational fraud losses for the year totaling more than $3.1 billion. The findings underscore the pervasive nature of fraud, with organizations estimated to lose 5% of their revenue annually. Pandemic-related factors have only further exacerbated the situation, with median fraud losses increasing by 24% from 2023 to 2024. Organizational staffing changes, remote work and operational process changes primarily fuel this increase.
The reported detection methods highlight the critical role of tips and hotlines. Tips were responsible for uncovering 43% of fraud cases. Employees accounted for 52% of those who reported fraud, confirming that a culture of vigilance plays a critical role in uncovering fraud.
Vulnerabilities in Not-for-Profits
The inherent nature of NFPs allows for vulnerabilities, including the lack of internal controls, centralized authority, insufficient financial oversight and the unique challenges posed by reliance on volunteers and nonreciprocal transactions. These vulnerabilities, combined with a reluctance to report issues for fear of negative publicity, make NFPs more susceptible to fraud than other types of organizations.
Best Practices for Fraud Prevention
Preventing fraud in NFPs and grants requires a comprehensive approach. Key strategies include implementing defined policies and procedures, ensuring segregation of duties and conducting thorough program monitoring. Fraud awareness training has also proven to significantly reduce the duration of fraud incidents: NFPs with training uncovered frauds more than 2.5 times faster than organizations that did not. With training provided, organizations uncovered the fraud in nine months, compared to 24 months for organizations without fraud training.
By adopting best practices for fraud prevention and fostering a culture of transparency and accountability, NFPs can safeguard their resources and continue positively impacting the communities they serve.
Brinker Simpson Can Help
At Brinker Simpson & Company, we understand the unique challenges faced by not-for-profit organizations. Our team is equipped to help you implement adequate internal controls, conduct thorough audits, and provide training to safeguard against fraud, waste, and abuse. Contact us today to learn how we can help protect your organization and support your mission.
