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VideoUnderstanding Fraud, Waste and Abuse for Not-for-Profits
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Highlighting the latest fraud trends and statistics, Occupational Fraud 2024: A Report to the Nations, from The Association of Certified Fraud Examiners (ACFE), paints a grim picture of the current fraud landscape for not-for-profits (NFPs). NFPs are susceptible to various types of fraud, waste and abuse, and the April 2024 report outlined the top vulnerabilities as well as best practices for fraud prevention and detection.
A Global Perspective on Fraud
The report analyzed more than 1,900 cases from 138 countries, with the losses of occupational fraud for the year coming in at more than $3.1 billion. The findings underscore the pervasive nature of fraud, with organizations estimated to lose 5% of their revenue annually. Pandemic-related factors have only further exacerbated the situation, with median fraud losses increasing by 24% from 2023 to 2024. This increase is largely fueled by organizational staffing changes, remote work and operational process changes.
The reported detection methods highlight the critical role of tips and hotlines, with tips being responsible for uncovering 43% of fraud cases. Employees accounted for 52% of those who reported fraud, confirming that a culture of vigilance plays a critical role in uncovering fraud.
Vulnerabilities in Not-for-Profits
The inherent nature of NFPs allows for vulnerabilities, including the lack of internal controls, centralized authority, insufficient financial oversight and the unique challenges posed by reliance on volunteers and nonreciprocal transactions. These vulnerabilities, combined with a reluctance to report issues for fear of negative publicity, make NFPs more susceptible to fraud than other types of organizations.
Best Practices for Fraud Prevention
Preventing fraud in NFPs and grants requires a comprehensive approach. Key strategies include implementing defined policies and procedures, ensuring segregation of duties and conducting thorough program monitoring. Fraud awareness training has also proven to significantly reduce the duration of fraud incidents: NFPs with training uncovered frauds more than 2.5 times faster than organizations that did not. With training provided, organizations uncovered the fraud in nine months, compared to 24 months for organizations without fraud training.
By adopting best practices for fraud prevention and fostering a culture of transparency and accountability, NFPs can safeguard their resources and continue to make a positive impact on the communities they serve.
Interested in learning more? Contact us, and access our recent public sector education webinar: Mastering Federal Grants and Understanding Fraud, Waste and Abuse.
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