Don’t Strike Out on Fraud Prevention

Posted by Christina K. Bell

Nonprofit Fraud PreventionWith the start of baseball season, many American hometowns take great pride in their local youth sport teams. Unfortunately, some local leagues trade in town pride for town headlines. Last month, news broke that a softball program volunteer had stolen approximately $13,000 from the program causing them to charter with another program.

The Association of Certified Fraud Examiners (ACFE) has found that 90% of all frauds involve some type of misappropriation of assets. Misappropriation of assets is the theft or misuse of an organization’s assets and the asset most susceptible to misappropriation is cash. The fraud method of choice tends to be through billing schemes which represent about 26% of all thefts and generally last about 2 years before detection. Two example billing schemes are

  1. An employee creates a fictitious company and bills the organization for goods and services never received
  2. An employee purchases personal items and submits the invoices to the organization for payment

Billing schemes can be difficult to detect, especially if done in small quantities over a long period of time; however, there are a few controls and indicators that can make prevention and detection easier, including the following:

Controls for Prevention

  • Segregate duties between purchasing authorization and vendor payment processing, even when these are done by volunteers
  • Ensure employees and volunteers are not set up as vendors in the accounts payable system
  • Validate new vendors as bona fide businesses by checking telephone directories and the Better Business Bureau
  • Set a budget and regularly review for unusual or unexpected expenditure variances

Billing Scheme Indicators

  • Expense categories that routinely run over their budgeted amounts
  • A high amount of purchases from a single supplier
  • Incomplete or insufficient vendor invoices

A good start in preventing the misappropriation of assets is simply to concentrate on the enhancement of fraud awareness within your organization and implementing the proper controls. Albert Einstein once said, “You have to learn the rules of the game. And then you have to play better than anyone else.” Unfortunately, for some town youth sports leagues, they lose the fraud game but with awareness and the proper controls it’s a game that can be won.

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