Steps to Prevent Employee & Volunteer Fraud | Plante Moran
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Plante & Moran Warns Nonprofits to Take Steps to Prevent Employee, Volunteer Fraud

Grand Rapids, Michigan, May 5, 2011
– While nonprofits are more vulnerable to embezzlement from employees and volunteers than for-profit businesses, a fraud expert from Plante & Moran, PLLC says some simple steps they can take to reduce their risks.

Forensic accountant Michelle McHale noted that nonprofits – particularly small ones – are highly susceptible targets because they often deal with cash and don’t have proper internal controls in place. They operate with skeletal staffs. Additionally, there is often little segregation of duties, meaning that the person taking in money is often the same person paying bills and writing checks.

Perhaps most importantly, a culture of trust exists at most nonprofits, making it difficult to imagine that an employee or volunteer would embezzle. But it happens more often than you think, McHale says – and far more often than it is reported.

“Nonprofits that have been defrauded may be very angry and in the mood for justice,” McHale explained. “But once they file a police report, the embezzlement becomes a matter of public information – and public scrutiny. It opens them to the potential loss of donors who are suddenly reluctant to support what they perceive as an organization unable to handle its finances.

“So most nonprofits never report fraud and never recoup the funds they lose. There are some simple steps that organizations can take to reduce the potential for embezzlement.”

A national survey from the Association of Certified Fraud Examiners ( notes that the median loss for a nonprofit is $75,000. While this is far lower than the $160,000 media loss of all frauds reported in the study, McHale said the amount can be devastating for many small organizations.

To reduce fraud risk, McHale recommends that nonprofits:

  • Put dual financial controls in place. For example, an organization that is selling raffle tickets should number those tickets and make sure that they are all accounted for. Checking accounts need to have two signatures. McHale notes that having a second set of eyes greatly reduces the likelihood of embezzlement.
  • Segregate duties. If Jane is taking in money for an organization, then Joe should be writing the checks to vendors. If Jane is making bank deposits, then Joe should be reconciling the accounts. McHale notes that two of the most common frauds is for an employee or volunteer to simply take the cash collected through fundraising efforts or issuing checks to pay personal expenses. If duties are segregated, though, it is much harder to do.
  • Create budgets. The process of creating and reviewing an annual budget helps establish expectations for revenues and expenses. McHale said this can be particularly helpful for nonprofits, allowing them to ask questions if income falls short or expenses grow too large.
  • Training. McHale always recommends offering training to employees and volunteers so they can be aware of what fraud is and how it is prevented, detected and reported.

About Plante & Moran, PLLC

Plante & Moran is among the nation’s largest certified public accounting and business advisory firms, providing clients with tax, audit, risk management, financial, technology, business consulting, and wealth management services. Plante & Moran has a staff of more than 1,600 professionals in 21 offices throughout Michigan, Ohio, and Illinois with international offices in Shanghai, China; Monterrey, Mexico; and Mumbai, India. Plante & Moran has been recognized by a number of organizations, including FORTUNE magazine, as one of the country’s best places to work.

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