How to Protect Your Nonprofit from Fraud and Embezzlement

Tens of thousands of nonprofit organizations across the United States fall victim to fraud and embezzlement every year. According to a study by the Association of Certified Fraud Examiners (ACFE), the median loss incurred by these charities is $82,000.

With this information in mind, you might be wondering what steps you can take to protect your charity from suffering a similar fate. At the Semanchik Law Group, we recommend:

Requiring Two Signatories on Large Expenditures

Lone actors are responsible for most of the fraud and embezzlement that happens in U.S. nonprofit organizations. The data assembled by the ACFE shows that these individuals can continue to siphon funds undetected for 18 months or more.

It is frequently possible to detect and stop these thieves in their tracks by requiring two signatures on all substantial expenses. It is much tougher to steal when you have to get your crimes past an extra set of eyes!

Should you need help implementing this new rule, don’t be afraid to reach out to your California charity lawyer.

Carrying Out Background Checks on All New Employees and Volunteers

According to the ACFE, about six percent of people who embezzle money from charities have a fraud-related conviction on their criminal records. To stop these individuals from stealing from your charity, employers should conduct background checks on all new employees and volunteers before they start.  Please note, however, many states have “Ban the Box” laws that prevent employers from excluding candidates from the hiring process.  Employers can only conduct background searches after making a conditional offer of employment.  If at that point you find someone with a history of theft, it is usually best to move on to the next candidate.

Segregating Accounting Duties

Many nonprofit groups hire one person to take care of all their accounting needs. Though this approach is convenient, it is also quite insecure. When one individual has sole responsibility for a charity’s finances, it is easy for them to steal money and cover their tracks afterward.

By segregating your nonprofit’s accounting duties, you can make it much more difficult for an unethical person to carry out such a scheme. If they try to do so, the other accountants on your team should soon notice that something doesn’t quite add up.

Your CPA and San Diego nonprofit attorney will be able to help you figure out the best way to divide up your organization’s accounting duties.

Securing Large Quantities of Cash

The ACFE’s report shows that around 34.5 percent of the money criminals steal from nonprofit organizations came in the form of cold, hard cash. So, if you wish to protect your charity’s finances, you would be smart to begin storing your cash in a safe or another secure location.  Alternatively, it is wise to move away from keeping cash of any kind if possible.

This advice is especially prescient for organizations that receive many of their donations in cash form.

Your Experienced San Diego Nonprofit Attorney

Do you need a California charity lawyer to help you implement these tips? Then you are in the right spot! The team at the Semanchik Law Group has been protecting nonprofits in San Diego for many years, and we would be happy to do the same for you. Give us a call at (619) 535-1811 or contact us online to schedule a free consultation and learn more about our legal services.