Nonprofit Risk Assessment

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March 22, 2017

Nonprofit Risk Assessment

By Kevin Peters

In a previous blog post, Siena Rambo provided insight on fraud risk assessment and the importance of implementation of such a plan. This is such a critical component of sound board oversight and organizational control we wanted to provide another follow-up specific to nonprofit organizations.  An article published by the AICPA-Not-for-Profit Section titled, An Ounce of Prevention: Combatting Fraud in Not-for-Profits (January 11, 2016) highlights some important unique factors a not-for-profit (NFP) organization should consider.

NFP’s are often more likely victims of fraud due to some of the following factors:

  • NFP leaders are generally more trusting of employees/volunteers
  • NFP’s are often subject to budget constraints and thus, administrative, accounting and internal control functions are not always top priority
  • Proper segregation of duties is often not fully understood or addressed
  • Oversight by an active finance committee with at least one member familiar with NFP accounting and tax compliance is not always as robust as necessary
  • Failure to follow policies and procedures and/or failure to review and update policies and procedures

So what should you do? Focus on these areas as well as factors that are most important to protecting the organization.  Obviously cost benefit considerations should be part of the process.  Other factors to consider:

  • Background checks on employees
  • Bonding employees who handle cash
  • Update and timely revise accounting policies and procedures
  • Establish an audit committee
  • Seek board members that have understanding of NFP finances and compliance
  • Require checks over a specified dollar amount be signed by 2 individuals
  • Require credit card statements be reviewed by someone independent of accounting (such as a board member and have this documented by reviewer’s initials and date)
  • Assess segregation of duties and consider utilizing board member expertise (such as a board member that is a CPA with NFP experience)
  • Require bank recons to be timely reviewed (again initial and date of reviewer) by someone other than the preparer.
  • Maintain supporting documentation for receipts
  • Follow (or adopt) a documentation retention policy
  • Establish a payroll/compensation committee which reviews and sets compensation for executive director and other key employees
  • Adopt and have board members and employees sign annual conflict of interest policy
  • Adopt a whistle blower policy

A quote by Tim Delaney, chief executive of the National Council of Nonprofits, has relevance: “The sector as a whole can’t afford the reputational damage from even the hint of fraud”. (AICPA-Not-for-Profit Section titled, An Ounce of Prevention: Combatting Fraud in Not-for-Profits (January 11, 2016))

Given your reputation is such a critical component for any not-for-profit organization, a review of these and other factors is worth your time.

We at Blackburn, Childers and Steagall are here to help. We have audit, tax and small business team members with knowledge and experience with NFP organizations.

Please contact us today.

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