Finance ... Acting quickly when fraud is suspected

The consequences of employee fraud at a nonprofit are so many and so potentially devastating that organizations must be prepared to act quickly and decisively when employee fraud is suspected.

Wrongdoing by a nonprofit employee will very often have implications for the entire organization, from casting a taint on the nonprofit or its mission to legal and financial responsibility in the case of monetary loss. The consequences can be huge.

At a recent national conference, attendees learned from Gerard Zack, founder of the Nonprofit Resource Center and president of Zack Accounting and Consulting, that there are certain initial steps that must be taken when someone in an organization suspects fraud.

The critical first step is risk assessment. The organization must determine what access the suspect has, what other types of fraud schemes the suspect could have perpetrated, given his/her level of responsibility and access, what the likelihood is of multiple perpetrators (collusion), how long it could have been going on and what technical complexities could have been involved.

After that, the organization must:

• Document all allegations,
• Obtain and document all pertinent information, documents and records,
• Identify all bank accounts involved and consider closing or freezing them,
• Determine who needs to be interviewed,
• Perform background checks if considered necessary,
• Develop details of an investigation plan.