Preventing Fraud During Vulnerable Times

The year-end giving season, combined with holiday absences,  may make your nonprofit organization vulnerable to fraud. The following technical measures may help safeguard your organization:

Cash Handling

• Supervision: Ensure a manager supervises anyone who accepts cash donations and maintain meticulous records of donations.
• Event Management: Minimize cash theft risk with presale tickets or preregistered participants. Encourage credit card payments at events.
• Background Checks: Assign cash-related duties to employees who have undergone background checks or trusted board members, rather than unsupervised volunteers.

Segregation of Duties

Internal Controls

• Segregation of duties is a fundamental internal control aimed at reducing the risk of errors and fraud. By dividing responsibilities among different employees, it ensures that no single individual has control over all aspects of any financial transaction.
• Assign different employees to handle various stages of financial transactions. For example, one person could be responsible for transaction authorization, another for recording transactions, and a third for reconciling accounts. This division helps to prevent and detect errors or fraudulent activities.

Invoice Processing

• When an invoice is received, the staff member who placed the order should verify that the goods or services were received as expected. This initial review ensures that the invoice is legitimate and accurate.
• A different employee should handle the payment of the invoice. This separation ensures  the person who approves the payment is not the same person who verified the receipt of goods or services, reducing the risk of fraudulent payments.
• A third employee should review the financial records to ensure that all transactions are recorded correctly and to identify any discrepancies. This additional layer of review helps to catch any errors or irregularities that may have been missed in the earlier stages.

Vacation Coverage

• When key staff members are on vacation, it is crucial to maintain internal controls to prevent lapses that could be exploited. Executives and board members can step in to cover critical duties temporarily.
• Ensure that multiple employees are trained to handle essential tasks. This cross-training allows for seamless coverage during absences and helps to maintain the integrity of financial processes.
• Conduct regular audits to review the work done during vacation periods. This practice helps to ensure that internal controls were followed and that no irregularities occurred during the absence of key staff members.

Gift Card Security

• Purchase Precautions: Buy gift cards from stores with good security measures, such as security cameras on gift card racks.
• Inspection: Inspect gift cards for signs of tampering and promptly distribute them to recipients, encouraging quick use to avoid fraud.

Maintaining Holiday Spirit

• Fundraising Vigilance: The period between Thanksgiving and New Year’s Day is critical for fundraising. Don’t let fraud undermine your efforts. Strengthen internal controls and remain vigilant to protect your nonprofit’s revenues and holiday spirit.

For further assistance in establishing or strengthening internal controls, contact us.