Preventing Fraud in Nonprofit Organizations

About the Author ix

Acknowledgments xi

Preface xiii

Disclaimer xv

About the Companion Website xvii

Section 1 Not-For-Profit Organizations: Four Consistent Areas of High Risk Embezzlement: Who Does It and When 1

Not-For-Profit Specific Issues 1

Summary 4

The Perpetrators: Who They Are, Why They Do It, and How They Are Caught 4

The Embezzler’s “Window of Opportunity” 9

Section 2 Statement of Auditing Standard No. 99 “Consideration of Fraud in a Financial Statement Audit” 13

Statement of Auditing Standard No. 99

“Consideration of Fraud in a Financial Statement Audit” 13

Section 3 Essential Internal Control and Administrative Procedures to Avoid Embezzlement 23

The Background Check 23

Conditions of Employment Agreement 28

Conflicts of Interest 34

Nepotism 37

Whistleblowers 39

Noncompete Agreements 41

Confidentiality of Information 43

Bonding Issues 45

Signers on Bank Accounts 46

Two-Signature Checks 46

Lockbox 48

Positive Pay 49

Deposit Security and Restrictive Endorsements 50

Check Stock 52

Cash Transactions 53

Cash Register Issues 54

Insurance Committees 54

Computer File Backups 55

Check and Wire Transfer Signatures 56

Inventory Issues 58

Company Credit Cards 58

Lines of Credit 59

Bad Debt Policy 61

Internal Audits 63

Stop Payment Orders 64

Voiding Checks 66

Numbered Check Request Forms 68

Expense Accounts 70

CPA Management Letters 71

Random Disbursement Checks 73

CHECK 21 74

Section 4 Clever Examples of Embezzlement 77

Payroll Tax Deposits 77

Check Switching 82

Ghosts on the Payroll and Ghost Vendors 88

The Danger of Acronyms 94

Bank Account Reconciliations 95

Wire Transfers 96

Postage Issues 98

Kiting 100

Manual Checks (Handwritten and Typed) 101

Auditing Receipts 104

Section 5 Steps to Take If You Have Been Victimized by Fraud 105

Documenting a Fraud Action Plan 105

Fraud Examinations and Assembling the Fraud Team 109

The Basics of Forensic Accounting 113

Section 6 Internal Control Analysis, Documentation, and Recommendations for Improvement 121

Internal Control Analysis, Documentation, and Recommendations for Improvement 121

Fraud Glossary 197

Index 217