Every year for the past decade, the Not-for-profit (NFP) sector has been voted the most trusted in the world – but just how valid is the ranking when it comes to the ‘F’ word: fraud and corruption? Despite the sector’s ongoing reliance on maintaining a high level of public and donor trust, there continues to be a unexplained complacency when it comes to the topic of fraud.
Although acknowledged by most NFPs as a problem for the sector as a whole, when assessing its own organisation, corruption is rarely seen as an issue. Unless NFPs and charities recognise – and start to properly manage – fraud and corruption risk, their reputation and public confidence – built up over many years – could be wiped out overnight. So where does this apparent reluctance to deal with the issue come from?
This article was originally written for the ACFE’s publication The Fraud Examiner.
The Unravelling of an NFP fraud scheme
A recent fraud investigation I carried out for a large international NFP is a textbook example of how fraud can occur in the sector. Despite one of its humanitarian projects being externally audited four times (two external financial audits, a capacity audit and a specific project audit), vague mutterings continued to circulate about improprieties. None of the four audits had highlighted any irregularities. On the contrary, the capacity audit stated that the project had been “appropriately designed, well planned, and effectively managed,” while the project audit confirmed that all relief items had been physically delivered to all beneficiaries. More