Fraud Risk: Every Nonprofit Mission is Exposed
Estimated Reading Time: 3 minutes
Lead Consultant & Risk Ethnologist
By Whitney Thomey
The US Internal Revenue Service and international organizations have teamed up to call attention to Charity Fraud Awareness Week, which takes place in October. Fraud awareness and prevention are top concerns for nonprofit leaders. What’s more, with the explosion of cybercrimes, this is a risk that affects all nonprofits no matter what size or mission scope you serve.
The Fraud Advisory Panel has compiled a list of resources to help organizations bring more awareness to charity fraud. One of the webinars they shared includes a basic counter fraud framework that nonprofits can employ to help safeguard their missions against fraudulent activities. This framework includes:
- Policies
- Fraud reporting mechanisms
- Whistleblower reporting/protections
- Response plans
- Analyzing exposure and risk
- Training
- Networking, and
- Reporting and accountability
Below is a compilation of NRMC’s top resources that will help you develop capabilities in these areas.
Build your knowledge
NRMC has published two issues of Risk Management Essentials on Financial and Cyber Risks. These two issues are a great place to begin building more knowledge about two fraud realms.
Risk Management Essentials: The Cyber Risk Issue
Risk Management Essentials: The Financial Risk Issue
Draft or revise your anti-fraud policies
One place to start fortifying your nonprofit against fraud is to examine any policies that address anti-fraud practices. Recently, Melanie Lockwood Herman, NRMC’s Executive Director, offered her top 5 tips on fixing what’s wrong with many organizational policies.
Do This, Not That: 5 Essential Risk Policy Drafting Tips
Analyze exposure and risk
An essential step in the risk management process is analyzing your organization’s potential exposure to and vulnerability to a particular risk. These steps are also helpful as you resolve to fortify your mission against fraud risks.
Read A Violation of Trust: Fraud Risk in Nonprofit Organizations for some insights into the cost of fraud risk, where and why nonprofits are vulnerable, common red flags to watch for, and helpful controls and principles that will enhance your action plan.
Create a plan of action
There are different ways that nonprofits can respond or fortify against fraud. Check out these NRMC resources for inspiration as you draft your anti-fraud action plan:
- IN is OUT, and OUT is IN: Outsourcing the Finance or Accounting Function in a Nonprofit
- Data Privacy and Cyber Liability: What You Don’t Know Puts Your Mission at Risk
- Surviving and Thriving in the Wake of a Data Breach
Provide reporting avenues and protections
According to the 2020 Report to the Nations produced by the Association of Certified Fraud Examiners (ACFE), 40% of fraud incidents were detected at nonprofits because of a tip or complaint. Therefore, it’s critical that nonprofit leaders encourage and support employees in raising concerns!
“…protecting whistleblowers from retaliation and encouraging constructive whistleblowing benefits nonprofits by increasing transparency and by giving management the opportunity to learn early on of unethical or unlawful practices directly from their employees rather than from the media, law enforcement, or a regulatory agency. In addition, effective whistleblower protection helps foster a work environment in which all employees are held accountable, thereby improving performance and empowering employees.”
- Charity Gone Wrong: Unethical & Illegal Conduct
- Whistleblower Protections in the Nonprofit Sector
- Say Something!
Reporting isn’t just about whistleblower protections; it’s also about creating a culture of accountability and safety. Building psychological safety into the fabric of your nonprofit will help team members feel confident and comfortable about raising the alarm when something out of the ordinary is observed, or they have a suspicion about untoward activities.
- Safe and Supported: The Intersection of Psychological Safety and Fruitful Risk Practice
- Workplace Culture: The Foundation for Sound Risk Practice
- Reduce the Risk of Ridicule
- Don’t Faint at Complaints: How Negative Feedback Can Enhance Your Reputation
Whitney Thomey is Lead Consultant and Risk Ethnologist at the Nonprofit Risk Management Center. She welcomes your questions about fraud prevention and your stories about building teams who feel comfortable raising risk concerns to safeguard your nonprofit’s mission at 703.777.3504 or Whitney@nonprofitrisk.org.
“First let me congratulate you on a conference well done. I had a great time at the Nonprofit Employee Benefits Conference and walked away with some valuable tools and questions that we’ll need to be addressing in both the short and long term. Thanks to you and your staff for all you do to provide us with quality resources in support of our missions.”
— Scott Brown, Mohonk Preserve
“BBYO’s engagement of the Center to conduct a risk assessment was one of the most valuable processes undertaken over the past five years. Numerous programmatic and procedural changes were recommended and have since been implemented. Additionally, dozens (literally) of insurance coverage gaps were identified that would never have been without the work of the Center. This assessment led to a broker bidding process that resulted in BBYO’s selection of a new broker that we have been extremely satisfied with. I unconditionally recommend the Center for their consultative services.
— Sidney Abrams, BBYO
“Melanie Herman has provided expert, insightful, timely and well resourced information to our Executive Team and Board of Directors. Our corporation recently experienced massive growth through merger and the Board has been working to better integrate their expanded set of roles and responsibilities. Melanie presented at our Annual Board of Director’s Retreat and captured the interest of our Board members. As a result of her excellent presentation the Board has engaged in focused review which is having immediate effects on governance.”
— Pamela Mattel, Basics Promesa Systems Inc
“The Nonprofit Risk Management Center has been an outstanding partner for us. They are attentive to our needs, and work hard to successfully meet our requests for information. Being an Affiliate member gave us access to so many time- and money-saving resources that it easily paid for itself! Nonprofit Risk Management Center is truly a valued partner of The Community Foundation of Elkhart County and we are continuously able to optimize staff time with the support given by their team.”
— Jodi Spataro, Community Foundation of Elkhart County
“The board and staff of the Prince George’s Child Resource Center are extremely pleased with the results of the risk assessment conducted by the Nonprofit Risk Management Center. A thorough scan revealed that while we are a well run organization, we had risks that we never imagined. We are grateful to know that we have now minimized our organizational risks and we recommend the Center to other nonprofits.”
— Marti Worshtil, Prince George’s Child Resource Center
Great American Insurance Group’s Specialty Human Services is committed to protecting those who improve your communities. The Center team has committed to delivering dynamic risk management solutions tailored to nonprofit organizations. These organizations have many and varied risk issues, hence the need for specialized coverage and expert knowledge for their protection. We’ve had Melanie speak on several occasions to employees and our agents. She is always on point and delivers such great value. Thank you for the terrific partnership and allowing our nonprofits to focus on their mission!