Fraud not only hurts a nonprofit organization financially, it hurts the people it serves and the community that supports it. Due to the negative publicity that can result, it is often kept quiet. But management and Boards of nonprofit organizations need to be aware of the risks and ensure appropriate internal controls are in place. Setting the right "tone at the top" is equally important, and education and clear communication encourages employees and volunteers to come forward with concerns.

The more common types of fraud in a nonprofit include theft of checks from donors and cash from special events, theft of blank organizational check stock, payments to fictitious employees, unauthorized employee raises, and submission of personal expenses as business expenses. Segregation of duties, multiple approval levels, background and credit checks are some of the internal controls that need to be in place to prevent and detect fraud.

Attorneys of the Community Development Project of Public Counsel recently released an easy-to-read and informative publication about fraud, focusing on preventative measures and guidance for investigating and reporting employee fraud and embezzlement. A must-read for all Board members and management of nonprofit organizations.

http://www.publiccounsel.org/tools/publications/files/0205.pdf