Late in 2014 BDO released their 2014 Fraud in Not-for-profits survey (read it here), which yielded some very interesting results. While one would like to imagine that the moltruistic nature of NFP’s means they are immune from fraud, this would be misguided, and in fact the evidence shows otherwise.
Unfortunately fraud in any organisation is a fact of life. KPMG’s most recent fraud survey of all organisation types was completed in 2012 (read it here), and a quick summary of their findings show that:
- A total of $372.7m was lost to fraud, with 86% being in the financial services sector
- There were 194,545 incidents in the 12 months
- The average loss per organisation experiencing fraud was $3.08m
- 47% of incidents were due to deficient internal controls.
The typical villain in the KPMG survey is:
- Male (3 times more likely than a female)
- An employee
- Acting alone
- No known history of fraud
- Earns close to $110k per year
- Typically motivated by greed/lifestyle or personal financial pressures.
Many organisations that the ABS InfoLink goes out to would be regarded as NFP, so let’s compare the KPMG all organisations survey to the more recent BDO NFP survey.
BDO found that frauds have been decreasing, but the average size ($22,904) and total amount ($3.2m) has increased. And surprisingly, 70% of those experiencing fraud had suffered it previously. Naturally organisations with a higher turnover are more likely to experience fraud. The average duration of the fraud was found to be 14 months.
The key risk factors for fraud amongst the NFP community are poor internal controls and poor segregation of duties. Cash theft is the most common type of fraud, followed by kickbacks/bribery and fraudulent personal benefits.
The typical villain in the BDO NFP Fraud Survey is:
- Paid employee
- Non-accounting role
- Over 50
- Acting alone
- Motivated by financial pressures and maintaining a lifestyle.
- The higher value frauds were motivated by people with gambling issues.
What is fascinating is that 54% of the victim organisations did not report the fraud to police. Only 63% terminated the employee, and 53% did not recover any of the funds.
The three key factors in reducing fraud were found to be external audits, an ethical organisational culture and strong internal controls. Frauds were typically discovered by tip-offs and internal controls.
No matter what type of organisation you are, fraud is a very real and present danger. Having strong internal controls is the most effective way of reducing fraud. Unfortunately, just because you may be an NFP, does not mean you are exempt. The Avondale Business School can advise your organisation on effective internal controls and managing your fraud risk – find out how by contacting Warrick Long at the Avondale Business School.
P: 02 4980 2168