A crippling snowstorm has closed my nonprofit today.  I can rest easy. It’s difficult to be a nonprofit fraud victim when you’re closed. But that strategy is impractical for the longer term  🙂

Nonprofits attract fraud like ants to honey. Why?

  1. It happens because you have money. If your total revenue is $100, you are relatively safe from fraud. There is not much theft from lemonade stands. When you receive a grant for $10 million, people notice. Board recruiting suddenly becomes easy. You attract Freddie, whose sister Betty — owns a building perfect for renting as a school. You need a new building. Freddie uses the board position to push the lease to Betty at a high price. The nonprofit gets the school, Betty gets rich, Freddie gets a finder’s fee. It’s corrupt, and often impossible to prove.
  2. Fraud happens because nonprofits don’t pay that well. The typical profile is a female who has worked in your nonprofit for 3 years, has considerable responsibility, and doesn’t make that much (Non Profit Quarterly 12/21/2007)
  3. Fraud happens because nonprofits build a corporate atmosphere of trust. Can you imagine your local bank being as friendly as you are?
  4. Finally, Fraud happens because nonprofits are famously weak on punishment. Sam, the front desk guy that everyone loves, stole $10,000 by tampering with checks received (NPQ, Ibid). It seems a shame to add a criminal charge to such a nice guy.

As much as we trust audits, they rarely reveal fraud. True forensic audits are very expensive. Even the government prosecution of Sheldon Silver (Majority Leader NYS Assembly 1/2016), almost did not succeed with the jury.  The majority of fraud is discovered by accident.

So, how can you stand in the door and keep (some) corrupt money from flowing this week?

  1. Realize that all of us will commit fraud under the right circumstances. If my child needs a medical treatment and I see a way to steal from you, I will do it and worry about the consequences later. You will too. And you have no idea what personal crises are going on in your company personnel.
  2. Once you have announced to your managers that we will all steal under the right circumstances, implement protective policies to reduce and eliminate. As Ronald Reagan said so famously ‘Trust, but verify’
  3. Set a high ethical tone. People watch you turning in lunch receipts that are not believable, attempting every known device to get more expense money. Sheldon Silver chose longer routes in business plane flights to get more points on his personal account. Certainly his office staff and direct reports knew that a flight to Albany does not go through Washington  🙂

You don’t have the time and money to catch fraud this week, but you probably can prevent it.

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