04/06/2014 - 13:49

Report finds fraud an issue for NFPs

04/06/2014 - 13:49

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One in three large charities is likely to experience some kind of fraudulent activity, often involving a board member, a recent investigation into the not-for-profit sector has revealed.

Report finds fraud an issue for NFPs

One in three large charities is likely to experience some kind of fraudulent activity, often involving a board member, a recent investigation into the not-for-profit sector has revealed.

The 2014 Not-for-Profit Fraud survey, conducted by audit firm BDO, found that more than one quarter of all organisations considered fraud to be a problem.

The risk of fraud increased with the size of an organisation; for example one in three organisations with turnover of more than $10 million suffered from fraud.

According to research undertaken by Business News, there are 18 charitable organisations with annual turnover of more than $10 million – Activ Foundation being the largest with turnover of $83 million in the year to June 2013.

In total, 90 per cent of the 436 respondents to the study across Australia and New Zealand thought fraud was a serious problem for the sector, but only 28 per cent thought it was something about which their organisation had to worry.

The report authors, Chris Skelton and Bernard Lamusse, said that statistic was the result of an increased awareness of fraud and the implementation of risk management strategies.

“The perception that fraud is not a problem for some organisations is not because fraud does not occur, it’s because they have implemented prevention and detection processes,” the report said.

Of those that reported the details of fraud, 42 per cent believed investigations only uncovered part of the fraudulent activity, while more than half failed to recoup any funds from the perpetrator.

The amount organisations lost through fraudulent activity in the past year amounted to $3 million, with the average fraud being just under $23,000.

Board members played a significant role in the cases of reported fraud, with board members involved in 30 per cent of ‘collusion fraud’.

Interestingly, when fraud was uncovered, more than half of the affected organisations did not report the crime to the police.

BDO said this was out of fear of tarnishing the organisation’s reputation in the eyes of potential donors.

“When an organisation experiences a large fraud or has recurring incidences of fraud, it often attracts social media or news media attention, and can lead to a change in the public’s perception of an organisation,” the report reads.

“This change in attitude by donors, potential bequest providers and other funders, can potentially affect funding sources.”

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