Protecting Charities and Donors from Charity Fraud

Charity fraud remains a persistent challenge in the nonprofit sector, and experts are sharing crucial advice on how organizations can strengthen their defenses against it.

Each year the National Association of Attorneys General (NAAG) and the National Association of State Charity Officials (NASCO) hold a one-day conference that includes both regulators and charities to discuss various issues facing the charitable sector. As in past years, BBB Wise Giving Alliance attended this event which was held in Baltimore, Maryland on October 8^th. One of the featured panels was titled “Fraud Resiliency in the Charitable Sector” and included moderator, Beth Short, Director of Outreach and Education, Ohio Attorney General’s Office along with two speakers: Jennifer Blasy, Manager, Your Part-time Controller, and Mason Wilder, Research Director, Association of Certified Fraud Examiners.

Beth began the discussion by encouraging charities to take steps to prevent fraud and “make yourself a hard target so that [a potential fraudster] will move on to someone else.” Mason Wilder said “trust is not an internal control… [charities] should prioritize their limited fraud resources” to help address this issue. He also explained there is a difference between internal fraud (such as employees or business partners committing fraud) and external fraud (such as scam emails, system hacks, etc.). Mason described three major types of internal fraud: corruption, asset misappropriation, and financial fraud. Further, undisclosed conflicts of interest are often a major risk factor that intersects with both corruption and asset misappropriation. But the costliest fraud is usually check and payment tampering.

Beth reminded the audience that once the money is gone, it is generally not recoverable and such theft reduces the community’s trust in charities.  Jennifer added that everyone thinks they are untouchable, but they’re not. Mason warned that people don’t stop to commit fraud in just one instance. If the charity does not report the criminal behavior to authorities out of fear of bringing attention to their circumstance, the fraud will be repeated at the next nonprofit that hires the person. He explained that is a sad recurring theme at organizations.

Mason noted that according to the latest edition of Occupational Fraud 2024 published by the Association of Certified Fraud Examiners, fraud at nonprofits makes up 10% of all occupational fraud with a median loss of $76,000. In a third of the reported cases, the lack of internal controls is the key fraud weakness. Activities that can help improve fraud resistance include monthly staff financial reviews, Board review of finances, reviewing payroll before it gets paid, reviewing credit card statements, and establishing a tone within the organization such as a zero-tolerance policy for fraud.

In response to these points, BBB Wise Giving Alliance notes that some of the BBB Standards for Charity Accountability address areas that can improve fraud resistance, including but not limited to, Standard 1 which addresses board oversight of the operations and staff of the charity and Standard 5 which addresses related party transactions. 

Heart of Giving Podcast: Ruth Holden-Hodson Discusses Climate-Friendly Solar Cooking for Vulnerable Populations

This week’s Heart of Giving Podcast features a discussion with Ruth Holden-Hodson, a member of the governing board of Solar Cookers International (a BBB Accredited Charity) that through advocacy and research, spreads solar thermal cooking technology, which aims to address the problem of inadequate household energy by providing a sustainable and environmentally friendly tool, with the goal of reducing greenhouse emissions and protecting biodiversity and habitats. 

Explore Three of Our Latest Reports

We are always working with charities to publish or update reports for donors. Visit Give.org or local BBBs to check out any charity before giving. Our recently evaluated charities include:

• American Kidney Fund
• Defenders of Wildlife 
• Marine Corps Association Foundation 

Finally, remember to let us know by going to give.org/charity-inquiry if you are interested in seeing a report on a charity not on the list and we will do our best to produce one.