By Steve Brettholtz
steve.brettholtz@mbcopa.com
All of us like to think that fraud is something that would be less likely to happen in a nonprofit organization due to the passionate fervor of the nonprofit community.
Sadly the facts don't support that position. There is a saying that typifies most nonprofit organizations when it comes to the possibility of fraud and that is "the organization is blinded by its passion."
The 2010 Global Fraud Study by the ACFE1 has just been issued and I'd like to share some information and statistics from that report with you.
- The median loss caused by occupational fraud was $160,000.
- The fraud lasted 18 months before being detected.
- Fraud is more likely to be detected by tip rather than by any other means.
Small organizations are disproportionately victimized by fraud and are typically lacking in proper controls making them vulnerable to fraud.
- More than 80% of frauds in the study were committed by individuals in accounting, operations, executives, and upper management.
- Asset misappropriation was the largest frequency percentage of occupational fraud (88.7%) followed by corruption (32.8%) and financial statement fraud (4.8%).
- The frequency of fraud occurrence in governmental agencies and nonprofits was 25.9%.
- The median loss for governmental agencies and non-profits was $190,000.
- The primary internal control weaknesses giving rise to the occurrence of fraud were:
In closing, the silver lining is that due to the types of individuals that work with nonprofit organizations, the frequency of fraud and the losses incurred are the lowest of the industries that were victimized according to the study.
However, it does still happen and every organization should strive to have a system of internal controls and an anti-fraud policy to reduce the possibility of an occurrence.
1Association of Certified Fraud Examiners
