INTOUCH : Defrauding NFPs

Losing money to fraud is destructive to any business but in the not-for-profit (NFP) sector the impact can be even more negative – undermining volunteer morale and tarnishing the organisation’s reputation. So how subject is the sector to fraud and how best to prevent it?
The recently released BDO Not For Profit Fraud Survey 2008 reveals that while things may have improved since its 2006 survey, overall losses across 384 NFP respondents in Australia and New Zealand over the past two years still totted up to nearly A$5million. Of the surveyed sample,16 percent had suffered fraud (compared with 19 percent in 2006) with 61 organisations experiencing 338 frauds totalling A$4.87 million. The largest number was experienced in the health industry category with 16 organisations reporting 216 cases of fraud which represented losses of A$2.87 million.
The survey found, not unsurprisingly, that bigger organisations handling larger amounts of money were more likely to be fraud targets and their average losses were higher. Most of the reported frauds were experienced by organisations in Queensland and NSW/ACT with New Zealand accounting for just seven cases totalling A$238,000.
One third of all reported frauds were cash theft with kickbacks, bribery and fraudulent personal benefits accounting for 12 percent; online and credit card payments both accounted for eight percent; theft of inventory, theft of assets and cheque fraud each accounted for five percent.
The average value of the largest reported frauds was A$45,527 compared to an average fraud of A$196,742 in large public and private sector organisations. Most of the perpetrators involved (20 cases) were in non-accounting positions but in terms of value their frauds totted up to an average of just A$13,960 compared to A$177,583 for those in accounting roles. The motivation for fraud was mainly financial problems/pressure or to maintain lifestyle, although gambling problems accounted for 11 percent of the total.
The report notes that while external audit is often relied on by organisations as method to reduce fraud risk (70 percent), it only accounts for minimal number of frauds discovered (five percent). Of the respondents reporting fraud, 36 percent had discovered it through internal controls, one third through tip-offs and 13 percent through internal audit.

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