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How Not For Profits Can Avoid Fraudulent Behaviour | DDA

Not-for-profits (NFPs) and charities operate with the best of intentions. They inspire high levels of public trust and confidence and are responsible for enormous amounts of charitable giving and volunteering. However, they can be vulnerable to fraud.

Many fall victim to fraudulent behaviour, theft and often misuse of charitable funds. Here is how to identify who’s responsible for the detection and prevention of fraud at your NFP and what measures you can take to minimise risks.

Who’s responsible for detecting and preventing fraud?

The detection of fraud rests with everybody in the organisation, but particularly those charged with its management and governance. Australia is not immune to cases of complex and secretive financial fraud in charities.

The media reports frequently fraud cases within the not for profit sector. A recent case involved a large not-for-profit, where a senior manager misappropriated over $2 million in funds across a 10-year period through forging invoices. We have examples of smaller associations where trusted treasurers misappropriated over $30,000 spending association funds for personal gain.

Whether you’re on the committee, or you’re a staff member or volunteer, there should be appropriate measures in place to protect your entity from fraud risk. Those charged with governance (i.e. board or committee) have responsibility for implementing effective internal financial controls and procedures to address fraud risk.

How not-for-profits can minimise fraud risk

Safeguarding your not-for-profit against fraud comes down to effective governance. Here are three measures you can start incorporating.

1. Lead from the top

Good governance culture directs how an entity operates, shaping the signature behaviours that bring a code of conduct to life.

This is enforced by management and the committee, who are responsible for the principles of integrity, ethics and transparency, and set the tone of ethical behaviours. Committee members are provided with trusted positions, however policies and practices should be put in place to minimise the risk of financial mismanagement including consideration of options for the separation of duties amongst staff/volunteer roles and responsibilities.

2. Review your internal controls, policies and procedures

Having appropriate policies and procedures in place is important in preventing fraud. Financial guidelines and policies should be filtered to all staff and committee members.

For example, does your organisation have adequate financial controls? Have clear delegations on who can approve purchases and other transactions?. Requirement for dual signatories on all bank accounts? Effective financial monitoring controls and separation of duties? Is your fraud prevention policy up to date? Have management and the committee assessed fraud risk and implemented an effective policy, to set expectations, including the financial reporting responsibilities of the organisation.

3. Monitor budgets, bank accounts, and keep track of grant funding

It’s important to regularly review bank accounts and call out anything that doesn’t add up. Good record keeping comes into play, including monitoring the performance of your NFP against its budget, such as spending or income. This is a great way to avoid and detect any financial irregularities in your not-for-profit business.

Auditors to the rescue

Looking for more effective risk and fraud management outcomes? Whether you’re tightening irregular cash flow or want improved financial controls to assist with fraud prevention policies, Dickfos Dunn Adam provides audit, assurance and advisory services to not-for-profits and charities on the Gold Coast. Get in touch with our auditors today.

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