Forensics Today: PwC

Mitigating fraud risk in nonprofits

Nonprofit organizations can be vulnerable to fraud because they often have high-trust environments, more deferential boards, less mature antifraud controls and limited awareness of fraud risk, which can allow schemes to go unnoticed for months or even years.
The impact can be devastating, as fraud diverts vital resources, disrupts operations and damages an organization’s reputation — which, in turn, can undermine donor confidence and fundraising.
To manage this risk, nonprofits should assess their vulnerabilities and implement strong antifraud controls, training, monitoring and response protocols.

Fraud is a growing threat across all industries but especially the nonprofit sector. Why? Nonprofits usually operate in environments of high trust with less oversight, they have the lowest rate of fraud awareness training compared to other sectors and their antifraud programs, if any exist, are often inadequate. Moreover, their employees’ duties are sometimes not segregated, which can mean a single person has total, unsupervised control over a given process.

That can make them uniquely vulnerable to fraud. And once targeted, nonprofits typically suffer disproportionate harm, as their insufficient defenses allow fraudsters to continue operating undetected for longer periods. Losses include diversion of mission-critical funds, disruption of operations and damage to the organization’s reputation. This, in turn, can threaten donor trust and the nonprofit’s ability to raise funds.

Effective fraud defenses are therefore essential to a nonprofit’s mission, governance and financial viability. To achieve resilience, nonprofits should implement adequate antifraud capabilities across their organization, including monitoring, training for board and staff, audits, crisis management planning, communications and incident response.

Download To learn how to build fraud resilience, download the full article.

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