Nonprofit Embezzlement and How to Avoid It

Businesses of all kinds and sizes are at risk for embezzlement, but nonprofits are likely the most likely to suffer at the hands of fraud. Embezzlement means an employee or volunteer took money from the organization without permission and used it for personal gains. Unfortunately for businesses everywhere, this is more commonplace than we’d ever hope for – in fact, according to the Association of Certified Fraud Examiners (ACFE), businesses lose as much as 5% of their annual revenues due to embezzlement. Nonprofit embezzlement is particularly damaging, because every dollar counts for the organization and operating budgets are already stretched to the max. Furthermore, something just seems particularly wrong with stealing from an organization set up to do good in the world.

In this Tally Services blog, we’ll cover the major ways your nonprofit can avoid embezzlement to ensure that your organization does not fall victim to this particularly detrimental act.

How to Avoid Nonprofit Embezzlement

1. Don’t Be Complacent – Don’t think embezzlement can’t happen to your organization, even if you have the best volunteers and staff. Everyone is at risk, and you should know and be ever mindful of the warning signs. According to the IRS, more than 1,000 nonprofit organizations have had significant funds stolen through embezzlement in recent years. 

2. Put Safe Processes in Place – If your organization hasn’t already, you should absolutely have safe money processes in place that include things like segregation of cash duties and multiple levels of review so no single person has sole ownership of the nonprofit’s books and funds.

3. Utilize Your Board – Every nonprofit organization should have some sort of board in place, and one of their duties should be to oversee the financials of the organization and be another set of eyes to watch for embezzlement. The board should request up-to-date financials and bank statements at every board meeting, if not more frequently, and carefully review the information to look for any inconsistencies. Board members can also set controls for who has access to the bank accounts, withdrawing money, and so forth. Boards can also set up systems to ensure that two board members sign each check, and so forth.

4. Manage Goods and Inventory – Many nonprofits have goods and inventory that they distribute to clients, donors, and the community at large. One of the easiest ways for people to steal from nonprofits is to pilfer these products, because often nonprofits don’t have a great inventory management system in place. By making your inventory audits more regular and putting a management system in place, you can reduce the likelihood that someone will steal your products and goods. 

5. Donation Management – If your nonprofit organization accepts donations or hosts fundraising events, make sure your organizations have systems in place to make sure no single person is in charge of handling the money alone. Especially if your organization accepts cash donations, making sure you have a plan in place to manage this money is key to preventing fraud. 

6. Set Up an Audit Committee – The board of the nonprofit should regularly audit the books to make sure nothing fishy is happening. This is a good chance for the board to take a look at withdrawals and deposits and make sure everything matches up. This committee should be well versed in the financials of the organization to be able to spot anything amiss.  

7. Get an Outside Perspective – The best way to prevent fraud altogether is to hire a third-party accounting professional to provide an outside perspective and help your nonprofit manage the books. They are specifically trained to look for instances of fraud and will help you track any inconsistencies.

Could your organization benefit from an outside auditor to make sure you’re not at risk for nonprofit embezzlement? Tally Services is here to be a second set of eyes to make sure your processes are as fraud-proof as possible and help you monitor the finances to spot any kind of fraud before it’s detrimental to your mission. Contact us to learn more about how we can work with you to make this happen.