Presented by Mike Hablewitz CPA Senior Manager Fraud Triangle 3 factors are generally present in any fraud Pressure Rationalization Opportunity Fraud Triangle Case 1 The situation ID: 500432
Download Presentation The PPT/PDF document "Fraud in Nonprofits: Real Stories" is the property of its rightful owner. Permission is granted to download and print the materials on this web site for personal, non-commercial use only, and to display it on your personal computer provided you do not modify the materials and that you retain all copyright notices contained in the materials. By downloading content from our website, you accept the terms of this agreement.
Slide1
Fraud in Nonprofits: Real Stories
Presented by: Mike Hablewitz,
CPA, Senior Manager Slide2
Fraud Triangle
3 factors are generally present in any fraud:
Pressure
Rationalization
Opportunity
Fraud TriangleSlide3
Case #1
The
situation:
2 people with access to accounting system and ability to prepare checks (one person usually prepared them)
Check preparers had access to signature stamp for the E.D.
Check registers were given by the check preparer to the E.D. for review and signatureSlide4
Case #1
What happened?
How did she do it?
Check preparer wrote fraudulent checks to herself
Used the signature stamp (although she could have forged the signature)Check registers were altered to exclude these fraudulent checksSlide5
Case #1
What could the organization have done?
Reviewed bank statements and cancelled check images
Accounted for every check number
Review financial statements – compare budgeted versus actual expensesSlide6
Case #2
The situation:
Board run organization (no employees)
Treasurer handles the finances
Board monitored/governed the organization’s finances by how much cash was in the bankSlide7
Case #2
What happened? How did he do it?
The Board President made dozens of fraudulent cash withdrawals
He also executed several fraudulent electronic payments
He received the bank statements and
he reported to the Board how much cash was on handSlide8
Case #2
What could the organization have done?
Board r
equirement
that monthly financial statements be produced, then compare budget vs. actual results; follow-up on
unexpected variancesHave someone else also involved in the finances, provide oversightReview of bank statements for unusual activitySlide9
Case #3
The situation:
The bookkeeper opened the mail, prepared the deposit log, and made the deposits
There was typically no involvement of another person in the deposit process
The organization received small, unsolicited contributions, including some cashSlide10
Case #3
What happened? How did she do it?
The bookkeeper skimmed from the deposits, typically from the cash
She filled out the deposit logs accordingly, or altered them afterward if need be (they were completed in
pencil!)
She didn’t take large individual checks that likely would have been easier to notice if they were missingSlide11
Case #3
What could the organization have done?
Have two people present when opening
mail
Have both people sign and date the daily deposit log, and complete it in pen or electronically (sign and date a hard copy)
Note: All checks should be restrictively endorsed immediately upon opening the mail regardless of how many people are presentCompare the deposit log to the deposits on the bank statements
Using a lockbox is an alternative solutionSlide12
Case #4
The situation:
The organization had multiple employees with a company credit card (all on one account)
The credit card bill was approved by the Executive Director just like all the other vendor billsSlide13
Case #4
What happened? How did he do it?
The Executive Director made numerous fraudulent (personal) charges using his company credit card
The Accountant didn’t make sure that receipts were turned in for all charges on the account
Only the Executive Director and Accountant saw the credit card bills Slide14
Case #4
What could the organization have done?
Require all receipts be turned in to the Accountant, and make sure the receipts haven’t been “altered”
Have an upward review and approval (board member) of the Executive Director’s charges/receipts
The same should be done for an Executive Director’s expense reportsSlide15
Case #5
The situation:
There were multiple people who could approve invoices and sign checks
The invoices were not marked “paid”
Mail from vendors was routed to the Accountant unopenedSlide16
Case
#5
What happened? How did
she
do it?The
Accountant would submit the same invoice/check to multiple check signers (could use a copy or just resubmit the same invoice)As a result, the vendor would be paid twice, creating a credit on the accountThe vendors would then send a check to pay the organization back, which was routed to the Accountant who cashed it personallySlide17
Case
#5
What could the organization have done?
Require that only original invoices will be approved for payment
Cancel all invoices, commonly done with a “paid” stamp where the date and check number is noted on the invoice
Have two people open the mail and immediately restrictively endorse incoming checks for the organization’s deposit onlySlide18
Case #6
The situation:
The Accountant submitted all payroll info to the 3
rd
party payroll provider
The payroll reports from the 3rd party were used by Accountant to record the transactions in the accounting systemNobody else saw the payroll reportsSlide19
Case
#6
What happened? How did
she
do it?The
Accountant submitted info to the 3rd party for a ghost employee (her relative)She had the necessary info to complete the paperwork, then forged a signature on a form
Employees were paid via direct deposit (no “individual” amount and cancelled check image available for review on the bank statement)Slide20
Case
#6
What could the organization have done?
Have the 3
rd
party payroll reports sent directly to someone other than the AccountantHave this person review the reports to ensure all names are legitimate employees (note: make sure the salary and wage rates are reasonable for everyone as well, especially the person submitting the info to the 3rd party)Slide21
Tips and Reminders
Trust your instincts – if something doesn’t seem right,
investigate it
Look for signs of pressures (fraud triangle)
Do background checks
Review the following:Bank statements, EFTs and check imagesPayroll reports
Credit card statements/receiptsFinancial statements, including budget variancesSlide22
Tips and Reminders
Cancel all invoices
Know who your employees and your vendors are
Have
two people open
mail and handle depositsHave two people involved at special events as well, especially if cash is involvedRestrictively endorse all checks immediately upon opening the mailSlide23
Closing Thoughts
Trust, but
verify; it
is okay to be
skeptical
Document your internal controlsDon’t rely on outside parties – employees are the best source for tipping off a fraud.Fraud happens, and it happens way more than we’d like to
think; nonprofits are certainly not immunePerpetrators are often the last person we would suspect
Don’t be on the front page of the newspaper!Slide24
Thank you!
Mike Hablewitz, CPA, Senior Manager
Wegner CPAs
2110 Luann Lane
Madison, WI 53713
608.442.1923
mike.hablewitz
@wegnercpas.com
www.wegnercpas.com
wegnercpas.com/blog
facebook.com/
WegnerCPAs
linkedin.com/company/
WegnerCPAs
twitter.com/
WegnerCPAs
google.com/+
WegnerCPAs