When many nonprofits were forced to adjust to the new business climate created by the global pandemic, few considered that with the abrupt changes came an increased risk of fraud. As nonprofits worked hard to keep their doors open and find new ways to serve their constituents, raise funds, and conduct business, new areas of risk also opened for many nonprofits.
According to Accounting Today, the risk of fraud greatly increased during the pandemic. In May of 2020, 68% of investigators said they were seeing a rise in fraud. By August, that number had increased to 77%.
The types of fraud varied. Some saw a rise in insurance fraud, while others noted employee embezzlement or intentional fraud connected to financial statements.
Here, we’ll cover three areas of business that, with the changes created by the pandemic, may have opened your organization to additional risk. If you take steps now, you may be able to prevent problems before they arise.
Internal Risk
Many nonprofits relaxed their internal controls as their employees shifted to telecommuting. Employees who wouldn’t dream of stealing from the organization while they were at work may be tempted by an “out of sight, out of mind” attitude by working from home. Sadly, employees may be struggling with financial strain if a family member lost their job or bills are mounting. These circumstances can tempt even the most honest person to conduct fraud.
Circumstances may also have opened the door for employee theft. What used to require a physical signature may now be approved via the computer. Limits on how much an employee could sign checks for may have been changed.
To prevent employee theft and fraud, now is a great time to revisit your organization’s internal controls. Review your policies and decide which controls may be returned to pre-pandemic levels.
Check in with your employees. It helps prevent the “out of sight, out of mind” attitude if employees feel connected to their managers and colleagues. It also lets them know you care and, if they are struggling, they may feel comfortable enough to share it with you. Then, you can choose to help them if possible.
Procurement Fraud
If your nonprofit purchases supplies of any type, you should consider the potential risk of procurement fraud. Procurement fraud can occur in many situations. A new vendor may request payment in advance or partial payment in cash, then skip town without delivering the order. Or they may shortchange an order, pocket the difference between what was ordered and what was delivered, and count on the fact you have fewer than normal people working on site to catch the difference.
To combat procurement fraud, it’s important to continue performing due diligence with any new vendors. Be sure to physically review all supply orders and compare purchase orders with invoices to make sure everything that was ordered was delivered on time.
Cyber Fraud
Lastly, with the changes created by the pandemic, the risk of cyber fraud may be increased. Many nonprofits had to make do with existing technology to enable employees to work from home. This led to employees using their own devices and potentially using unsecured WiFi. Both can open the door for trojans, viruses, malware, and ransomware.
If your organization rushed into telecommuting, now is the time to take a step back and look at the technology you’re using. Does it support secure remote access? Cloud-based systems offer enhanced security features as well as easy remote access and may be an ideal solution for nonprofits who wish to continue to allow telecommuting.
Some cybercrimes can be prevented through increased awareness and vigilance. Consider adding additional training for your staff so they can recognize phishing emails and similar schemes to gain access to your organization’s systems.
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.
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