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Non-profit fraud case study

Non-profit organizations fulfill a vital role in society. These companies provide services for the people who are most in need. While non-profits may believe that their employees share their altruism, they are unfortunately sometimes the victim of fraud.

In many non-profit fraud cases, the people who commit fraud are those who are in positions of authority and are highly trusted within their organizations. If you are a member of a non-profit company, here is what you need to know about fraud in non-profits and implementing better management strategies.

How common are non-profit fraud cases?

Non-profit fraud cases happen much more frequently than you might think. According to a study by researchers at Harvard that was published in the journal Non-profit and Voluntary Sector Quarterly, non-profit organizations lose an estimated 6 percent of their annual revenues to fraud each year for a total loss that is estimated at $40 billion.

Non-profit organizations may be targeted by internal and external thieves because they may not have strong controls in place. Some non-profit agencies are also hesitant to report thefts because of a concern that their reputations might be harmed, leading to fewer donations.

Fraud in non-profits is commonly perpetrated by people who are in trusted positions of authority such as executives or accountants. However, fraud may also be perpetrated by lower-level employees as the following case demonstrates.

Non-profit fraud case study: Administrative assistant steals $5.1 million

In an egregious case of non-profit embezzlement, a 44-year-old administrative assistant, Ephonia Green, who worked at the Association of American Medical Colleges, stole $5.1 million over an eight-year period from the non-profit organization. The organization, which is located in Washington, D.C., administers the Medical College Admissions Test and represents universities and colleges across the nation.

Green reportedly created fake company names that were close to the names of actual vendors. She would then create invoices in the names of the fake companies so that checks would be issued to them. Finally, she would deposit the money into her own personal accounts. Green used $1.8 million to keep a bridal shop that she owned afloat. The long fraud scheme fell apart when a bank noticed that something was amiss. She was sentenced to serve 46 months in prison.

Non-profit fraud case study: Bookkeeper steals $800,000 that was meant for veterans

In another non-profit fraud case, a 54-year-old Connecticut woman named Deirdre M. Daly reportedly stole $800,000 from the National Veterans Services Fund, a non-profit organization that provides social services and medical help to veterans of the Vietnam and Persian Gulf Wars and their families.

Daly worked as a bookkeeper at the organization. During a five-year period from 2009 to 2014, she diverted $800,000 from the organization to pay for her own needs and made fraudulent entries into the organization’s books to cover her tracks. She was prosecuted in federal court by the U.S. Department of Justice and was sentenced to two years in federal prison followed by three years of parole. She was also ordered to pay full restitution to the NVSF for her non-profit embezzlement.

Ways to prevent non-profit fraud cases

There are several ways that non-profit companies can prevent fraud. Nerd Wallet recommends a number of risk management strategies that non-profits can implement to help to reduce their fraud risk. They should always have multiple people responsible for different tasks such as counting donations and reconciling accounts. Access to the organization’s accounts should be severely restricted.

Non-profits should implement strong accounting practices, including software, surprise audits, and regular reconciliations. It is better for non-profits who can qualify for credit to use credit cards instead of cash or checks. This can help to track purchases more easily a reduce non-profit fraud cases. Non-profit organizations that do not have sufficient credit histories to secure credit cards may want to use non-profit debit cards because they come with strong internal controls.

Non-profits can limit the cards’ use to specific transactions and set limits on the cards by the day, week or month. They can also view the cards’ transaction histories at any time from their secure dashboards and turn off an individual card immediately if they see misuse.

Bento for Business’s Visa debit cards make for great non-profit debit cards and automatically upload transaction data into the organizations’ existing accounting software. They can help to prevent fraud before it starts. Deposits that are made into the account that funds the cards are insured by the FDIC up to $250,000.

Approval for the cards does not depend on your organization’s credit history, and there is a 60-day free trial so that you can see if the cards will work for your organization. Call us today at 866.220.8455 to learn more, or start a free 60 day trial.

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