Nonprofit Crime Prevention: Spotting Financial Red Flags

Nonprofit Organization Crime Prevention > Keeping Clean Finances

In this series of posts, we’ve been exploring the common pitfalls of nonprofit organizations and how these red flags can be pinpointed. As we mentioned in our previous post, a transparent and elected board of directors can minimize illegal activity. Next, healthy financials are a big factor in a nonprofit’s success, including fundraising, loan approvals, and receiving grants. Without healthy financial data, these organizations can face an early demise. In addition to sharing this pertinent information regarding financial red flags with your clients, protect their entire operation front to back with a customized Nonprofit Crime Insurance program.

 Cash handling.

According to Williams Benator & Libby CPA’s, one of the most common forms of fraud involves “skimming” or intercepting money before it is recorded on the books. Cash is most often the target of this type of theft, but checks and credit card payments are also fairly easy to convert to cash. Regular review of the cash receipts activity and ensuring it is in line with expectations is an important control to provide oversight in this area. If there is any cause for closer scrutiny, review the processes and procedures for how cash and other money coming into the organization is handled. Ensure that one individual does not have the job of receiving, recording and depositing income. Likewise, one person should not be responsible for both reviewing and reconciling bank statements.

Job segregation.

Implementing a system of checks and balances will prevent one person from having too much control over the money. Ensure more than one person is required to be present to initiate and approve payments on behalf of the nonprofit. Next, take it a step further by ensuring the credit card statements are approved each month by an objective third party and that the list of vendors that all checks are made payable to are legitimate.

Claims of specialized services.

Does one person claim to be the only one who can understand the organization’s needs or services? Is there someone who seems to be the only one who knows how certain processes or programs work? If so, that is a red flag that should be addressed. Even with limited staff, one person should never be in control of all of the financials, accounting, and reporting.


About Domenick & Associates

At Domenick & Associates, we have a unique understanding of the nonprofit sector and how to properly secure your clients’ operation. From personal and advertising protection to crime coverage, we offer a range of products that are necessary for their success and longevity. For more information about our products, contact our experts today at (215) 629-5701.

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