Appropriate management and board oversight, cyber awareness, and updated policies and processes are vital parts of a strong anti-fraud plan.
Given its complexity, transaction volume, and high frequency of processing, payroll is one of the most vulnerable areas for fraud. The risk for payroll fraud increases without proper oversight and separation of duties.
- False time and hour reporting
- Ghost employees
- Payroll tax fraud
Mitigating fraud relies heavily on the appropriate separation of duties. By separating payroll processing, change authorization, and the recording and reconciling of entries, fraud can be quickly and easily detected.
- Verify proper documentation for authorized employee pay rate changes
- Compare hours by department against prior pay periods
- Utilize the Social Security Number Verification Service
- Review for duplicate addresses and bank accounts
- Recalculate actual tax obligations
- Utilize the electronic tax payment systems to confirm tax remittances
Certain neglected or unpaid payroll obligations leave management and board members personally liable even with proper directors’ and officers’ insurance in place.
Accounts Receivable Fraud
Fraudsters use information found on a nonprofit’s website to create credible solicitations; they also use the goodwill of charitable giving to test stolen credit cards.
Accounts Receivable scams
- Digital giving risks: credible looking emails and texts requesting donations, particularly in times of tragedy or disaster
- Testing stolen credit cards: criminals test stolen credit cards by making small donations
Stolen credit card use is an organizational burden, and any fraudulent donations must be recovered to the card owners. A nonprofit also bears responsibility for any credit card chargeback fees. It is important to note that if there are too many chargebacks in a short period of time, the merchant account that processes payments may be suspended or lost.
- Educate donors
- Be consistent with donor marketing materials and timing of solicitations
- Ensure internal separation of duties
- Reconcile bank transactions to digital giving records and donor records on a daily, weekly, and monthly basis
- Utilize credit card processing controls, including establishing minimum online donation amounts
Overarching Anti-fraud tips
- Provide ongoing anti-fraud training and education to staff, volunteers, and the board (include specific and situational examples!)
- Create a culture of fraud awareness (anti-fraud!) and zero tolerance for fraud
- Perform fraud risk assessment
- Update policies
- Establish a whistleblower hotline and/or other effective reporting mechanism
- Management and board oversight
Limited resources may feel like a hindrance in fraud avoidance, but that is not the case—there are several measures that an organization can take that require little to no budget.
Strengthening culture, proactive planning, and targeting common schemes are all proven, cost-effective methods that detect fraud early and minimize occurrence.
YPTC is here to help!
Fraud mitigation can be complicated, but YPTC is available to assist with resources, checklists, and experienced staff. For more information about this topic, click here to watch the Frightening Fraud webinar or here to contact YPTC for assistance.