Not-for-profit audit committee guidebook
Your organization’s most valuable asset is its reputation, and that reputation must be able to withstand today’s increase scrutiny. As an audit committee member, you are a guardian of that precious asset.
The average organization loses 5% of revenues each year to occupational fraud.* Is your business at risk?
Contents
Fraud happens. It doesn’t matter what industry you’re in or how big—or small—your organization is, today’s fraudsters don’t discriminate. As a charity or not-for-profit organization (NPO), you’ve likely heard of a number of frauds that have occurred in your industry. In response to this, Doane Grant Thornton LLP has put together a list of preventive and detective measures your board can take to help reduce the risk of fraud and financial exposure.
Classifying occupational fraud
Occupational fraud, also known as internal fraud, occurs when an employee, manager or executive commits fraud against his or her employer.
Despite advancements in technology and concealment tactics, the methodologies used in occupational frauds generally fall into clear, time-tested categories. Under the Association of Certified Fraud Examiners’ Occupational Fraud and Abuse Classification System these types of frauds fall into three main categories:
- Asset misappropriation
- Theft of cash on hand
- Theft of cash receipts
- Fraudulent disbursements
- Corruption
- Conflict of interest
- Bribery
- Illegal gratuities
- Financial statement fraud
- Asset/revenue overstatement
- Asset/revenue understatement
The red flags
An important component of fraud prevention and early detection is learning how to spot the red flags. While they take a variety of forms, the following is a list of common red flags:
- Weak internal control environment
- Incomplete, missing or non-standard documentation used in business dealings
- Track record of sloppy, secretive or irregular accounting activity
- Exclusive or preferred treatment of vendors, often under the guise of sole-source contracts
- Management decisions made primarily by an individual or small group
- Frequent changes in external auditors
- Previous complaints, allegations or concerns over club or employee conduct
- Conflicts of interest are the norm rather than the exception
- Key individual and/or organizational background check comes back negative
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