Simple Fraud Controls to Implement Now

Fraud can be very costly to businesses and nonprofits alike. Fortunately, there are several simple controls organizations can implement to help prevent fraud and protect their assets.

Segregation of duties

You’ve likely heard this from your auditors, but no single employee should have complete control over a financial transaction from start to finish. For example, the employee who approves an invoice or check request should not be the same employee who processes the payment or who has access to blank check stock (if applicable).

One way to determine your current risk level is to break down each financial transaction process (cash receipt, disbursement, payroll, etc.) and identify individual duties as either authorization, recording, or custody.

Look for staff performing multiple duties and see if there is a way to separate those. For smaller nonprofits, it may be necessary to share some duties but try and combine them in a way that helps lower risk.

For example, an individual could perform recording and custody, but not authorize the transaction. Smaller nonprofits could use a board member to approve expense reports of the executive director and/or approve larger disbursements.

Monitor bank accounts

On a regular basis (at least monthly), monitor bank accounts for unusual activity to detect potential fraudulent transactions. This includes review of bank statements and transaction reports looking for unusual activity, such as large amounts not recognized or repetitive payments to the same vendor. Keep the individual who is reviewing separate from the person who is reconciling the statements or processing the transactions, if possible.

Pro tip: Many bank websites offer automatic email notification of transactions over a certain amount and several other options, such as positive pay.

Consider purchasing and corporate card automation

Manual purchase orders can be cumbersome; however, there are several inexpensive cloud-based tools for purchasing and corporate card spending that can help enforce your policies and require online approvals for spending. Check out this blog for more information.

Conduct background checks

Conducting background checks on potential employees can help prevent fraud by identifying any red flags before an employee is hired. This can include checking for criminal records, credit history, and references. A cautionary tale from experience is that an organization did not conduct a background check on a new employee with a criminal record, and the new employee was able to misappropriate assets.

Online security

Password and IT policies can help prevent unauthorized access to sensitive information. This could include requiring passwords be complex, changed routinely, and mandatory password changes, if an account is compromised.

How CLA can help with fraud control for nonprofits

Start with a quick evaluation of your internal processes and procedures over the controls mentioned to segregate duties. Look for any simple controls that can be changed or implemented immediately. For example, if your nonprofit is small and only has a few employees, see if the board treasurer would be willing to review bank statements monthly. If your nonprofit does not have the bandwidth to undertake this on your own, our consulting and outsourcing team could conduct a business assessment of your processes and controls and make recommendations.