An article we ran in a recent newsletter, More Than Money, dealt with fraud in nonprofit organizations. It’s unfortunate that individuals commit fraud against organizations that do good work for our community. As discussed in this article, typically nonprofit organizations are afraid of the brand damage that fraud could potentially cause. However, when dealt with in an appropriate manner, the organization’s reputation doesn’t have to be tainted or suffer. Fraud and Forensic accountants recommend that instead of taking immediate action, you hire a professional to conduct an internal investigation. By avoiding an abrupt reaction you can put your organization on a winning track to recovering your lost funds and instituting strong internal controls to avoid future fraud. Below are tips that can help you and your organization possibly avoid losing a winning case and/or recover lost funds:
- Don’t announce an internal investigation: This type of investigation should be done quietly. Announcing it to the entire organization can give the perpetrator time to come up with a justification, destroy evidence or disappear. There are countless ways that your case could be doomed by announcing your internal investigation, so don’t do it.
- A second opinion, never underestimate it’s value. Consult a professional immediately. Keep your HR head on top of it as they would be familiar with all employee rights. Make sure they advise you as to any rights violations. Make it a point to consult with your HR and your company counsel prior to proceeding with an investigation.
- The trail, don’t forget about the trail: Compiling all evidence is crucial to fraud investigations. Your forensic accountant can help you put together a document trail against the perpetrator. All relevant information should be together in a case file for questioning, jury or judge if necessary. Just because a case seems simple and straightforward, don’t forget that there are certain court requirements that no one can bypass. Make it a point to save all evidence and documents related to your investigation. Put these together in your fraud case file.
- This is not Dateline: The more interviews you hold, the more time you are giving your perpetrator to prepare or even influence peers. Don’t hold pointless interviews; remember secrecy is key to a successful fraud investigation.
Perpetrators at nonprofit organizations may count on the fact that these organizations are less likely to persecute fraud perpetrators. Don’t fall victim to fraudsters. If you, with the help of a certified fraud examiner, can put together a strong case against a fraudster and win, you can set a tone at your organization that fraud will not be tolerated. Donors and the public will appreciate the transparency at your organization and won’t hold your brand responsible for someone else’s malicious acts. Checking the 990 box that indicates your organization lost significant funds to theft, fraud or embezzlement may be a good temporary fix but in the long run it’s better for your organization’s financial future to pursue perpetrators and implement strong internal controls.
While the above tips are helpful in managing a successful fraud and forensics investigation, it does not guarantee that you will win your case. An ideal forensic accountant and attorney are great partners in fraud investigations. If you suspect fraud, don’t rush to act and dismiss the employee. Or to check the 990 box, first consult a professional.
Walter Derengowski, CPA, CFE, is a senior nonprofit audit manager at Gelman, Rosenberg & Freedman CPAs, a professional services firm that provides clients with financial, tax and consulting solutions. Gelman, Rosenberg & Freedman CPAs has been a member of CPAmerica International since 1998.
For more information about Gelman, Rosenberg & Freedman CPAs, please visit their website at www.grfcpa.com or call (301) 951-9090.