This article was originally created for Hayes Knight (now Nexia Auckland).
Home > Updates > Your organisation is at risk from Fraud!
Anecdotally the incidence of fraud is often greater in not-for-profit entities than in commercial entities. In commercial entities there is usually a critical focus on the financial results of the entity. This is usually the key measure of the entity’s success. Accordingly financial results and position receive very close monitoring and attention. In many not-for-profit entities, which exist for reasons other than purely financial success, there is often a lack of similar critical focus on financial results. This situation creates a greater opportunity for fraud to occur undetected.
New Zealanders are also guilty of some head in the sand behaviour on the topic of fraud. More than one survey on this topic in New Zealand has found that many New Zealand not-for-profit organisations believe there is perceived fraud problem in the sector…but then did not believe this to be the case in their organisations!
Sadly fraud also often occurs because of ignorance. The all too common “It couldn’t happen here” attitude means that the risk of fraud is not always proactively managed. Also, too common is the thinking that “it is someone else’s responsibility”. As a result the proper safeguards are not put in place making it easier than it should be for your organisation to be ripped off. Studies have shown that internal controls are generally the most successful method of detecting fraud.
While having a competent audit of your organisation is one part of the solution, you also need to be proactive in order to stay safe. A brutal reality of auditors as part of your control toolbox is that we come in after the event. Hence if auditors do detect fraud it will often be some time after it occurred; the ambulance at the bottom of the cliff. Whereas your internal controls are the fence at the top of the cliff.
You need to make sure it is a strong fence.
Getting conclusive facts about fraud is difficult. While there are annual surveys, many people do not want to report fraud in their organisation due to embarrassment or concerns about teaching others. However the following are some key facts which we believe may be useful information for your organization:
Remain sceptical – Think the worst and prove the best!
If you do suspect fraud in your organisation it’s essential that you immediately seek appropriate advice from an expert such as an auditor or forensic accountant with fraud investigation experience, or a solicitor who has taken fraud cases. It is unfortunately easy to destroy your chances of recovery of funds if the correct process is not followed. It is also ridiculously easy to finish up on the end of a personal grievance claim from the fraudster – costing your organisation even more money!