It has been a difficult couple of weeks for non-profits in the media. On Thursday, the criminal and fraudulent acts that directly led to the closure of the much-loved Capital Families organization in the Westshore were proven in a court of law. Over a two year period, Capital Families long-term book keeper stole more than $200,000.00. It may not seem important to know why the book keeper wrote fraudulent cheques to herself and obscured the paper trail – was it need, greed, desperation, revenge, fear, or pressure? It may feel that, regardless of the cause, the consequences are the same – Capital Families closed, the community lost a great service provider, and donors, funders, and stakeholders were left wondering how this could happen in a well-managed non-profit. But the truth is that knowing why and how fraud happens helps us all reduce the risk of it happening in our own workplaces. 

While it may not be criminal theft, reports continue to emerge about the Portland Housing Society and the forced resignation of their Board and Executive staff. Several audits revealed a series of large and questionable expenditures for items like family vacations, spa days, nights at the Plaza Hotel in New York, and long limousine rides. In any non-profit organization these types of expenditures are difficult to justify, but in an organization  serving  the citizens of the Downtown East Side these expenditures appear indefensible. The audits have not resulted in criminal charges, but the statements that staff deserved these items signal a sense of entitlement that is difficult to reconcile with the mission and values of the organization, and may be fraud of another kind.

It is important to remember that two reports does not signal the beginning of a trend. Fraud specialists report that about 5% of revenue in a typical organization is lost to fraud each year and that the median loss to fraud is lower in non-profits than in private or public corporations. (Shane Troyer, Principal Grant Thornton LLP, Shane.Troyer@ca.gt.com) Still, having a ‘better loss’ reputation than our corporate cousins does not necessarily send the right message to our donors and funders at a time when organizations are trying to grow donations and program investments.

So, how can you ensure that you are taking all of the necessary precautions to reduce the risk of fraud in your organization? 

• talk about fraud with staff, board, volunteers, and with your auditors
• create fraud policies – articulate what will happen if fraud is suspected and the consequences for individuals engaged in fraud
• include staff in scenario planning – where can fraud happen and how could it happen
• identify risks and triggers in your organization
• complete reference and criminal record checks for all staff and volunteers
• identify ways you can strengthen your culture of transparency and accountability
• invest in health and wellness to reduce the risk of unhappy staff and volunteers
• build teams that cross check, share files, and work together to reduce loss and fraud risks
• Seek expert advice on fraud and risk prevention