Accounting Fraud in Nonprofit Organization

KRISTEN VICENCIO ORGC 201 -102 OCTOBER 15, 2012

Examples
FBI reported that more than two thousand of the

internet sites soliciting relief for Hurricane Katrina victims were fraudulent Spokane elementary school

Nearly $20,000 stolen Funds raised from selling cookie dough

PTO in Pennsylvania Had to cancel its field trips for the year after $34,000 was stolen by the treasurer Amateur hockey association Bookkeeper pleads guilty to embezzling more than $934,000 Funds raised to build a hockey rink. Other Headlines: Ex-lawman convicted in big charity scam As charitable cheating rises, so does cost to taxpayers (USA Today 2005) Tax Abuse Rampant in Nonprofits, IRS Says (Crenshaw 2005) California: Jail term for charity fraud (The New York Times 2004) Two former officers of Dallas charity ordered to pay $14 million in damages (Healy 2004

Fraud
Nonprofits: Entities that engage and inspire individuals and communities for public benefit Conduct their activities with transparency, integrity and accountability Fraud: A statement is materially false. Knowledge that the statement is false when made. A victim relies on the statement. The victim suffers damages as a result of relying on the false statement. Nonprofit Accounting Fraud: Occupational fraud Consumer fraud Insurance fraud Medicare fraud

Fraud

Results
Nonprofit fraud cases have been higher during the past five years as

compared to the previous decade Three-quarters of surveyed companies reported that they had experienced fraud within the prior 12 months. Most fraud goes unreported Association of Certified Fraud Examiners (ACFE)

all organizations lose on average six percent of their revenue to fraud every year Fraud loss would be approximately $40 billion each year for nonprofits

1998 2002 Study Frauds perpetrated by officers or directors of all types of charitable organizations. 131 cases, with a median loss in excess of $130,000 2003 Study Accounts of alleged criminal acts by employees of nonprofit organizations that were reported for the first time in 2003 32 cases, with fraud losses ranging from $1,209 to $1,900,000 The total amount stolen was over seven million dollars.

Prevention

Protection

Board Membership
Audit Committee

The charity that is a trifle to us can be precious to others.

- Homer

Sources

Greenlee, Janet, Teresa Gordon, and Elizabeth Keating. "An

Investigation of Fraud in Nonprofit Organizations: Occurrences and Deterrents." Harvard. N.p., Dec. 2006. Web. 10 Oct. 2012. <http://www.hks.harvard.edu/hauser/PDF_XLS/workingpapers/work ingpaper_35.pdf>. McNeal, Andrea and Michelman, Jeffrey E., "CPAs' Role in Fighting Fraud in Nonprofit Organization" (2006). Accounting and Finance Faculty Publications. Paper 8. http://digitalcommons.unf.edu/bacc_facpub/8