Category

Fraud

Cyber Defense – Five Steps to Improve Your Peace of Mind

By | Fraud | No Comments

If you think you’re immune to cybercriminals because you run a nonprofit organization, think again.

Cybercrimes against nonprofits are more common than you think. According to the Nonprofit Quarterly, there has been a 270 percent increase in the number of attacks against business, with small businesses and nonprofits at higher risk than ever before.

Why? It’s simple: easier targets. Criminals know that nonprofits and small businesses are less likely to have the time, patience, and resources to fight back when they’re the target of an attack. They pay up rather than risk the resources, capital, and reputation that might be spent defending against the attack.

It’s been said that the best defense is a good offense. That certainly goes for cyber defenses. There are five things a nonprofit can do to defend against the most common cyber-attacks. Taking these steps may mean the difference between sending an “I’m sorry” email to your constituents and business as usual.

Five Steps to Defend Against Nonprofit Cyber Attacks

There are many things you can do to prepare for and defend against cyber-attacks, but the following stand out as being simple, easy to implement, and within the abilities of most nonprofits.

  1. Educate employees about threats: Keep up to date about the latest types of cyber threats and educate your employees about the signs of such attacks. Employees may not know about ACH attacks, for example, which target them through emails pretending to be from the CEP to gain access to company bank accounts. These and other attacks pose serious threats to nonprofits but can easily be thwarted through education and vigilance.
  2. Encourage reporting of potential attacks: Encourage your employees to ask for help if they think they’ve accidentally clicked on a bad link or given out information to potential cyber thieves. Make it safe to do so and avoid repercussions that could discourage them from reporting. Early reporting of possible breaches enables you to take swift action to batten down the hatches against further problems.
  3. Establish offline ways to confirm financial transactions: Ensure that employees can confirm transactions or the release of vital information offline through a phone call to a senior executive. Offline ensures that a link in a phishing email won’t take the employee straight back to the scammer for confirmation. It also puts in place a series of checks to stop possible mistakes.
  4. Create backup systems and files: The use of cloud-based software such as cloud-hosted fundraising and donor management software protects files against viruses on your network by hosting them off network and onto a more secure cloud system. Other software such as Abila Cloud Accounting secures valuable financial detail through controlled access to accounts and financial systems.
  5. Prioritize updates: It’s tempting to click “ignore” when a pesky update notice pops up on your computer. Patches and updates close gaps in software codes that can be exploited by thieves, so don’t neglect updates. Conduct regular software updates on all of your systems. Cloud-based software updates automatically and in the background so you don’t have to remember to update it. That’s another reason for choosing cloud systems for accounting, financial management, donor and fundraising management, and more.

Do you remember a television commercial featuring Smoky the Bear? Smokey’s slogan was, “Only you can prevent forest fires.”

Well, only you can prevent cyber-attacks by taking the appropriate steps to protect and defend your organization. If you believe in your mission, then you know it is worth the time and effort to secure valuable resources against external threats like a cyber-attack.

Welter Consulting

Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact Welter Consulting at 206-605-3113 for more information.

12 Steps to Improve Internal Controls

By | Accounting, Audit, Fraud, Internal Controls, MIP Fund Accounting, Nonprofit | No Comments

There’s no better time than now to review and analyze your organization’s internal controls. We’ve broken up the intimidating task of updating and maintaining proper internal controls while being slightly more focused and productive, with these 12 simple yet necessary steps.

Step 1: Map out your current processes and workflows. Detail out internal accounting procedures with a simple step-by-step checklist or list of rules. Clearly identify how long each step of authorization should take to process.

Step 2: Identify clear separation of duties. Open your workflow documentation back up and assign owners for each procedure, and other process owners who may be involved in authorizations, approvals, or reviews.

Step 3: Bring in an outside expert to review your current processes. Leverage outside expertise like certified fraud examiners (CFEs) or attorneys specialized in evaluating and improving internal controls. They can help identify any gaps or vulnerabilities.

Step 4: Find a new home for your documentation. You’ll want to maintain documentation of your processes in a commonly-used location that is easily accessible by staff. It will need to be continually updated as needs shift throughout the year.

Step 5: Review security permissions in your fund accounting system. Your technology should fully support your desired workflows encompassing your separation of duties. Update your security settings to limit system access, based on defined roles and security groups.

Step 6: Set up monitoring alerts. Ideally, your fund accounting system can be set up with active monitoring alerts to quickly notify other staff about key activities, such as when checks are printed, but not recorded, or vendor hold payment status is changed.

Step 7: Create a digital audit file. Here you’ll organize and maintain artifacts for future audits, including bank statements and reconciliations, investment summaries, fixed asset and depreciation schedules, documentation of donor pledges and grant funds received, and year-end accounts payable and expenses.

Step 8: Update your employee onboarding. Now that your documentation is up to date, you’ll need to update your new employee onboarding to reflect the changes. It’s important to promote a shared commitment of financial responsibility from the start with a new employee.

Step 9: Set a reoccurring monthly budget review. The budget is not just a planning tool – this is a key internal control. Schedule monthly budget reviews for reconciliation, explaining variances to the budget keeps proper checks and balances across departments.

Step 10: Recruit for an audit committee. You’ll want to institute a strong audit committee of independent members (typically from the board) who are familiar with finance and accounting. They should select and review the independent external auditors and help monitor for fraud.

Step 11: Schedule an internal audit. The best prepared organizations perform internal audits to ensure key control activities are being followed, and to identify any reconciliation discrepancies. Find an appropriate time for your team and stick to the date.

Step 12: Set up quarterly staff trainings. You must reinforce your controls with periodic trainings. Take the time now to get these on the calendar and build into the agenda time to discuss any shifting accounting standards for which you may need to adjust.

Remember, the objective of internal controls is to put “checks and balances” in place to help manage and preserve the charitable assets of the organization. It builds a foundation of policies and procedures that ensures employees act responsibly and ethically and prepares the organization for expected scrutiny (for example, audits and budget reviews) and tough to predict events (for example, staff turnover).

Here are a few resources to help you implement the 12 Steps to Better Internal Controls:

 

Welter Consulting

Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact Welter Consulting at 206-605-3113 for more information.

Trust, But Verify: Avoid Fraud by Maintaining Internal Controls

By | Accounting, Fraud, Internal Controls, MIP Fund Accounting, Nonprofit | No Comments

Trust, so the experts tell us, must be earned over time. In the workplace, it is earned by consistently performing one’s duties well and by successfully accepting ever-increasing responsibilities.

The nonprofit workplace, like the for-profit workplace, works best in an atmosphere of trust and mutual respect among one’s colleagues. Without it, the workplace can be hostile, unfriendly, and uncomfortable.

But there is a fine line between suspicion and performing due diligence. Nonprofit organizations should guard against allowing trust to blindside them to the potential dangers of fraud and theft in the workplace.

A Cautionary Tale of the Ramifications of Blind Trust

One story that stands out is the story of Marge (not her real name), who worked at a large nonprofit organization. She was like a second mother to the staff. Honest, always willing to work extra hours, diligent in her job duties in the accounting department, Marge was trusted with managing many areas of the organization’s finances.

Although the organization had internal controls in place, they were often waived for Marge and other senior staff members who were so well-regarded and trusted that they weren’t questioned when they dodged the procedures. Marge was especially trusted and valued and did not have anyone present when she counted out petty cash or handled the checkbook.

One day it was discovered that money was missing from the petty cash. An audit revealed that small amounts of money had been taken from the petty cash box as well as from the checking account. Because Marge controlled both, she could make slight adjustments in the entry ledgers to avoid suspicion for a long time. It took the auditors only a short while to uncover the discrepancies and for Marge to confess that her lottery ticket habit had become a necessity and that she had been stealing ever increasing amounts to fuel an obsession with gambling.

Is Marge an isolated case? We think not, and a quick survey of the various nonprofit journals reveals similar patterns of fraud. Fraud doesn’t occur in isolation. It tends to occur when gaps are left within the internal controls that are intended to prevent such situations. In this case, trust and friendship overrode common sense. Exceptions were made that should not have been made. The result was an organization poorer for the loss of both money and a trusted employee who had to be let go when the truth was revealed.

Preventing and Identifying Fraud

Trust is a wonderful thing and a valued commodity in the workplace. That said, it should not preclude the use of standards, internal controls, and audits.

  • Preventing Fraud
    • Standards are the accepted norms for an industry. Accounting standards, security standards, and workplace standards can be codified and recorded in written manuals provided to all employees. Everyone can then be held to the same shared standard of conduct and behavior.
    • Internal controls are the processes and procedures put into place around access to the organization’s finances. These controls should be written down and shared among staff. Training sessions and refresher training session are also important to ensure consistent understanding of the controls among everyone.
  • Recognizing Fraud:
    • Audits bring in outside consultants such as CPA firms, well-versed in accounting for nonprofits to examine your organization’s financial records, provide recommendations, and discover discrepancies.
    • Provide staff with an anonymous method to report incidences of fraud to their supervisors or to the managers in your organization.

Trust doesn’t have to be blind. Assuring people that their work matters, listening to their ideas, implementing their suggestions and other positive examples of trust can build bonds among workers that engender loyalty to your organization. Don’t leave your nonprofit open to fraud or theft due to blind trust. Trust, but verify, and stick to accepted norms and standards of behavior and internal controls to prevent problems before they occur.

About Welter Consulting

Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact Welter Consulting at 206-605-3113 for more information.

How Good Are You at Detecting Nonprofit Fraud?

By | Accounting, Audit, Fraud, Nonprofit | No Comments

The average nonprofit fraud loss averages around $600,000, according to the NonProfit Times. With so much at stake, understanding your fraud IQ is important. How much do you know about nonprofit fraud?

Principles of Fraud Risk Management

The principles of fraud risk management include:

  1. Fraud risk governance: Establishing and communicating a fraud risk management program demonstrates expectations to all stakeholders. A written program which can be shared is a great idea.
  2. Fraud risk assessment: This includes items such as employment checks, ensuring people take vacation time and more.
  3. Fraud control activity: Selecting, developing, and deploying fraud risk management activities. A good example is a set of internal controls.
  4. Fraud investigation and corrective action: Establishing a communication process to investigate and correct any suspected fraud. Also includes a written, established and coordinated approach to the investigation.
  5. Fraud risk management and monitoring: Every organization should select, develop, and perform ongoing fraud risk management evaluations. Look at these five principles and see how they apply throughout the organization. Any gaps should be addressed immediately.

Data can, and should, be used throughout all of the fraud risk assessment and analysis activities. As we’ve shown in a previous article, Benford’s Curve is one example of how data can be used, albeit a simple use, to indicate possible fraud. CPAs, auditors, and others can use more sophisticated techniques to detect errors and fraudulent activities.

Whose Responsibility Is It, Anyway?

Who on staff is responsible for fraud detection, management, and corrective actions? Your senior management team is ultimately responsible for all of these actions. The Board of Directors provides oversight and guidance, but the “buck stops” at the desk of your senior leadership team.

Fraud Risk Assessment

Fraud risk assessment includes considering all potential routes of fraud. This includes internal and external areas at risk as well as personnel who might have access to materials which enables them to commit fraud.

Even with the best risk assessment and controls in place, it may be impossible to prevent all types of fraud. It is still critical for nonprofit organizations to have fraud risk assessment measures in place, internal controls, and other measures enacted to prevent, limit, and detect fraud.

Stopping Fraud Starts with You

Much is at risk when it comes to nonprofit fraud. It’s not just the potential loss of $600,000 or so, which is, of course, a substantial number. It’s also the risk of losing the trust and faith of the public.

Nonprofit organizations are under heavy scrutiny now from a public who has grown weary of extravagant spending. People want to donate to their favorite charities, causes, and membership organizations, but they won’t do so if they feel their money is wasted. Fraud is one example of waste that many  donors feel can be prevented.

Your organization works hard on behalf of its members, donors, and beneficiaries. Ensuring that you take all necessary steps to prevent fraud and detect it if it occurs is essential to building and keeping the public trust.

For more information on fraud prevention, see:

About Welter Consulting

Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact Welter Consulting at 206-605-3113 for more information.