How to Spot Financial Fraud in a Nonprofit

“We all want to believe that nonprofit corporations are full of hard-working people committed to improving society—and most are. But even the most well-meaning nonprofits can get into financial hot water.

Unfortunately the temptation to cover up financial problems can be particularly seductive for nonprofit managers.

For starters, nonprofits are only required by federal law to report discrepancies of more than $250,000, or over 5 percent of an organization’s annual gross receipts or total assets.

By the time a nonprofit is that far into the weeds, the impulse to cover up the problem—versus coming clean and risking losing millions from spooked donors—can be overwhelming.

A shocking Washington Post investigative piece published October 26, 2013 discovered that from 2008 to 2012 over 1,000 nonprofit organizations had indicated on their federal disclosures that they had discovered a “significant diversion” of assets. These were losses attributed to theft, investment fraud, embezzlement and other unauthorized uses of funds.

Perhaps the most well known example of this came at the hands of Bernie Madoff. When nonprofit organizations like Yeshiva University and Hadassah, both of whom lost significant funds invested with the Ponzi scheme, but fraud also commonly includes simple mismanagement and even stealing.”

Read the full post here.