Where fraud is occurring at nonprofits

It is a sad fact that fraud has taken place at nonprofit organizations, just as it has out in the for-profit and bureaucratic world.

At the American Institute of Certified Public Accountants Not-For-Profit Industry Conference, Gerard M. Zack, president of Zack Accounting and Consulting and founder of the Nonprofit Resource Center Inc., outlined the recent trends that are showing up in nonprofit fraud.

According to Zack, a 2006 study showed that private companies had 36.9 percent of fraud cases, public companies 31.7 percent, government agencies 17.6 percent and nonprofits 13.9 percent. The median loss was $100,000.

He noted that while traditional check tampering and disbursements continue to be prevalent, certain varieties within those areas have become apparent.

They are:

• A significant increase in cases involving corruption, including kickbacks, bribes and undisclosed conflicts of interest;
• An increase in cases involving electronic access to or theft of data, sometimes while employees are working off site, hacking into networks, etc.;
• An increase in external attempts at check tampering and electronictransfers from NPO accounts;
• An increase in cases in which a nonprofit is held liable for fraudsperpetrated by its employees or agents against others; for example, an employee steals credit card information of a member of the organization; and,
• An increase in the use of sham or impersonator charities.

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