The Association of Fraud Examiners released a report summarizing an analysis of 2,504 cases of fraud taking place from January 2018 to September 2019. While this is not intended to capture all fraud that takes place, it provides a detailed analysis of the costs and methods of occupational fraud as investigated by certified fraud examiners from around the world. Of this total, there were 191 cases that involved nonprofit organizations. Here are some highlights of the nonprofit data:

• The median loss was $75,000 with the average loss being $639,000
• 74% of the cases involved either executives or managers/supervisors
• The top three types of fraud experienced at nonprofits were: corruption, billing and expense reimbursements.
• 40% of these frauds were detected by tips or complaints, 17% were found by internal audits

As stated in the study, “Nonprofit organizations can be more susceptible to fraud due to having fewer resources available to help prevent and recover from a fraud loss.” Among other things, the report concludes that a lack of internal controls and less oversight contributed to fraud at nonprofits.

In part, the lessons learned from this data is that while no organization can be immune to the possibility of criminal behavior, steps can be taken to help reduce its occurrence or help detect it quickly to avoid significant loss. Actions such as fraud education, hotlines and/or whistleblower complaint policies, and data monitoring can help.

BBB Wise Giving Alliance believes these fraud cases also point to the importance of having audited financial statements, especially when gross revenue exceeds $1 million, as called for by BBB Charity Standard #11. These statements are more reliable and complete than an IRS Form 990 and will usually include a management letter for the board of directors advising them of any recommended changes to strengthen practices. Finances alone, however, are not the only issue that needs to be verified as demonstrated by the broad nature of the BBB Standards for Charity Accountability which also address charity governance, results reporting and accurate and transparent communications.

Video of the Week

As part of our Building Trust Video Series, we are pleased to provide a video interview with Mabel Valdivia, Executive Director of Fonkoze USA, a BBB Accredited Charity that provides microfinance loans, skills training, and health products and services to the poor in Haiti.  The organization reports that it serves as Haiti’s largest microfinance institution, with 96% of its borrowers being women starting or expanding small businesses.

Recent 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:

• Live Action
• Society of St. Andrew
• Stand for Children Leadership Center

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.

H. Art Taylor, President & CEO
BBB Wise Giving Alliance