Moore Stephens
Forensic Accounting

Who can commit fraud in non-profit organizations?

Fraud in NPOs – Whether it’s receiving a school scholarship or participating in sports or community activities, individuals benefit from a multitude of services provided bynot-for-profit organizations(hereinafter referred to as “organizations”) over the course of their lives.

However, organizations don’t always have the financial and material resources to respond effectively to demand. Combined with other issues, this can lead to your organization not fulfilling its mandate effectively, and restrict the implementation of effective internal controls. Often, the trust that members place in each other acts as a control.

It is by taking advantage of this climate of trust and control weaknesses that volunteers, employees, members of senior management and directors, hereinafter referred to as “stakeholders”, can seize the opportunity to commit fraud. Lower salaries than in the corporate world and the donation of time without financial compensation are generally the reasons why an individual commits fraud.

EXAMPLES OF FRAUD AND CONTROLS

Conflict of interest

A conflict of interest situation, real or apparent, arises when a stakeholder has the opportunity to promote his or her personal interests or those of other related persons to the detriment of the organization’s interests, and the situation is not disclosed to other stakeholders.

A director proposes to sign a service contract with a company without disclosing to the other directors that he has a financial interest in the company. This undeclared conflict of interest could result in the perpetration of a scheme to overcharge service fees for his own benefit, knowing full well that no one else will be auditing the transactions related to this contract.

Tips :

  • Create, implement and involve employees in the development of a code of conduct and a policy for declaring conflicts of interest. Employees may be more motivated to denounce unethical behavior if they are involved in policy-making.
  • Involve Board members in overseeing decisions made by senior management by encouraging directors to ask questions and get answers.

Use of organization funds for personal purposes

A stakeholder may use the organization’s funds for personal purposes, either to pay personal expenses out of petty cash or the organization’s credit card, or to file an expense report that includes personal expenses (or to obtain property from the organization). Generally, personal expense transactions will not be documented (justified) with an invoice or receipt so as not to reveal the reason for the expense.

The general manager uses the organization’s credit card to pay for her travels and meals in luxury restaurants without reimbursing the organization. In addition, the General Manager is not required to submit supporting documents for transactions or payments, since there is no validation of the expense report by an administrator.

Tips :

  • Always obtain the original supporting documents for each accounting process. Missing or altered supporting documents can be an indication of fraud.
  • The involvement of directors can lead to earlier detection of fraud perpetrated by senior management.

Fraud related to payroll

Payroll fraud occurs when the employee responsible for payroll uses one or more techniques to increase his or her remuneration, such as paying a fictitious employee, stealing time, recording hours not worked or making unauthorized changes to his or her hourly rate.

In order to increase his pay, which he finds inadequate, the employee responsible for payroll adds unworked hours to his time sheet, which is not validated by his superior.

Tips :

  • Establish proper segregation of duties, rotate jobs and force employees to take vacation. Variations in financial information following a change of employee may be an indication of fraud.

Misappropriation of funds and collected goods

Employees and volunteers are the organization’s first point of contact for donations. There is therefore a risk that funds (or assets) may be misappropriated for personal use before they are recorded in the organization’s books.

A volunteer responsible for receiving, sorting and distributing clothing donations to the needy takes a few garments at each collection for personal use, since there are no controls on items entering or leaving the warehouse.

Tips :

  • Require at least two people to participate in the receipt of goods (or funds), consign the goods (or funds) at the time and place of receipt, carry out accounting and secure the premises. The presence of a second person reduces opportunities for asset misappropriation.

OTHER BEST PRACTICES

  • Training your members will always be the best means of prevention. Fraud can seriously damage your organization’s reputation and even bring it to a halt.
  • Create, implement and train employees on an anonymous alert system. Employee whistle-blowing will always remain the best means of detection.

For these and other fraud prevention and detection tools, we’re here to guide you! Write to us!

Article on fraud in non-profit organizations written by Audrey de Rancourt-Raymond, CPA auditor, CFE in collaboration with Jacqueline Lemay, CPA, CA, CA,EJC, CFF.

Subscribe to receive our advice.

RECENT NEWS

Always well informed

How to prepare for an accounting and financial audit?

Having an audit enables companies with reporting obligations to comply with the laws and regulations in force in Canada. In addition, an audit reinforces a company's financial credibility with investors and creditors, thereby facilitating access to financing. We understand that business leaders often view the audit process with some reluctance, due to the time and [...]
READ

Best practices in human resources

From recruitment and training to labor relations and personnel administration, HR professionals orchestrate strategies to attract, develop and retain talent. To meet the challenges of the professional world in 2025, HR departments are adopting innovative approaches that combine technical expertise, interpersonal skills and mastery of digital tools.

READ

Tax Implications of Teleworking Abroad

The COVID-19 pandemic has turned our lives upside down and reshaped the world of work. Telecommuting has become an integral part of life for many Canadian employers and employees. Not only does it allow you to work from your home office, it also means you can work from anywhere in the world, at any time [...]
READ

Increased Tax Scrutiny for Canada’s High Net Worth: Issues for Wealth Management

The Canada Revenue Agency (CRA) has recently strengthened its monitoring program for High Wealth Tax (HWT) groups. This program targets individuals with a net worth of $50 million or more, representing a significant portion of Canada's private wealth. In 2023-2024, the CRA conducted over 700 tax audits, generating a total tax impact of $1.8 billion. [...]
READ

Maximizing Business Value With EBITDA: Calculation, Finance and Valuation

EBITDA (or Earnings Before Interest, Taxes, Depreciation and Amortization) is a key financial indicator used in the world of business valuation. It is used to assess business performance and plays a crucial role in acquisitions and buyouts, enabling investors to make informed decisions about a company's financial health. In this article, we'll explore EBITDA in [...]
READ

Tax Credit for Charitable Donations

Charitable donations offer significant tax advantages in Canada. In fact, when made by an individual, charitable donations may qualify for a non-refundable tax credit. In the case of a corporation, the tax advantage lies in a deduction in calculating the corporation's taxable income. For individuals, the federal tax credit is 15% on the first $200 [...]
READ

GST/QST Break, the Hidden Consequences

Companies incurring food and beverage expenses during this period will therefore not pay GST/HST on these expenses. They will need to adjust their accounting systems to avoid claiming input tax credits on these categories of expenditure. It’s worth remembering that the treatment of GST/HST is parallel to the treatment of meals and entertainment expenses for income tax purposes.

READ

The Québec agrifood industry: between resilience and challenges

Present in every region of Quebec, the agri-food industry is an essential component of the economy and of people's daily lives. It goes far beyond primary production, encompassing processing, distribution and retailing, supporting a value chain that is vital to local economies. With over 75,000 businesses, this dynamic sector contributes to the province's food self-sufficiency [...]
READ
  • Montréal
  • Brossard
  • Close to you wherever you go
  • Laval
  • Montréal
  • Brossard
  • Close to you wherever you go
  • Laval
  • Montréal
  • Brossard
  • Close to you wherever you go
  • Laval
  • Montréal
  • Brossard
  • Close to you wherever you go
  • Laval