Eight practices to prevent fraud and theft

From time to time you hear about theft within non-profit organizations. Usually the organization did not have sufficient internal controls to prevent or catch the situation, and sometimes the thief gets by with it for years. Here are eight practices that will discourage theft, or will catch the thief in the act.

1. Check references and/or require bonding for personnel who have responsibility for the funds of your organization. You don’t want to hire some e with a history of theft.
2. Require actual receipts be attached to any credit card bill. The bill itself doesn’t include enough detail for you to assure that all the costs were legitimate.
3. Take inventory of purchases, so when someone runs to the grocery store or office store, they bring the items in and someone else checks them against the receipt so that no one is siphoning off items for their home. When a package of items is received at the office, two people check off the items and store them for later use.
4. Reconcile the bank statements by actually viewing the checks or images of the checks and comparing them to the check register in the accounting software. Someone other than the accountant should do this — preferably the executive director or the chair of the finance committee, depending on the size of your organization. This prevents changing the payee, shows gaps in the numbering of checks so you can find the missing ones, and reveals any checks that have been signed fraudulently.
5. Assure that the person who prepares the checks is not allowed to sign the checks, and no payee should be able to sign their own check.
6. The person who prepares the checks should put the entire packet together for the signer to review, including all costs covered by the check, the detailed receipt(s) and the allocation of the costs to the proper grant or cost objective. Include the envelop for mailing the checks. Then the checks should be mailed by someone other than the person who prepared them. Again, this assures that the payee isn’t changed.
7. Secure Directors and Officers insurance and listen to what the insurer has to say about good practices.
8. Conduct an audit – a single audit if your center spent $750,000 of more in federal funds in the year, and a financial statement audit otherwise.

Take a look at your policies and practices. The board members and management staff are stewards of public funds, and you need to preserve the public trust as well as your organization’s future. Make sure you are doing what you can to prevent the misuse of your assets and preserve your organization.

You can find sample financial policies and procedures on our website. For more information about the audit, check out an earlier post.