Fraud again

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Fraud in the Not for Profit (NFP) sector is never too far from the news, and may not be too far away from each NFP.  Each time an act of fraud occurs, trust in an organisation is eroded and a few more people will become less likely to donate to good causes or provide sponsorship.

Last month the former executive director of the Australian American Association’s Victorian Branch was sentenced to a 15 month suspended jail sentence after pleading guilty to stealing $100,600 from the organisation.  The Association is still unable to find a further $800,000, which appears to have gone missing in connection with the former executive director’s conduct.

One of the key findings of the 2014 BDO Not-for Profit Fraud Survey was that while NFPs believed that fraud was a significant concern in their sector, it was not so much of a concern in their own organisation.  While this appears to show a casual disregard for reality, it also highlights the levels of trust within the sector, a factor which provides leverage for the desperate or the unscrupulous.

Of course fraud and corruption are not crimes that are limited to the NFP sector and in one of our earlier CompliSpace blogs, we outlined steps that organisations generally can take to try and avoid those activities occurring. The first step is to recognise the risks and to establish a framework of policies and procedures that will provide a level of comfort that, protective measures are in place.

The BDO Survey showed a direct correlation between an organisation having a risk management framework in place and it experiencing lower losses as a result of fraud. The survey found that an organisation without a risk management program was likely to have lost an average of $51,000 more to fraud than an organisation that had a functioning program.

In a similar vein, the Australian Charities and Not for Profit Commission (ACNC) has investigated over 240 complaints, which have covered various levels of improper and illegal behaviour amongst charities. What it found when it analysed its 15 worst cases, was that they all pointed to a failure in governance. When you scratch below the surface of that yawning chasm, you find that a risk management framework that identifies risks and puts measures in place to manage those risks with rigorous Board oversight, translates into good governance.

Pundits often cite a strong organisational culture as the best form of control for preventing fraudulent activities. That’s a noble statement but what does it really mean? It is crucial to be very clear on this point. Culture is not simply ‘what we do around here’ as many a manager would have you believe, culture is ‘what we do around here when no one is looking’, and it is no coincidence that when no one is looking, most of the fraud takes place.

A strong organisational culture does not happen by accident, it requires leadership, commitment and the implementation of governance, risk and compliance infrastructure as its foundation.

When it comes to fraud, management of financial controls are an obvious starting point e.g.  the introduction of a Fraud and Corruption Control program which requires the internal scrutiny of cash flows, regular external audits, separation of approvals from expenditure and clear financial delegations and limits.As we highlighted in our blog, there are also key non-financial measures that can be taken to establish a strong  ethical culture which can significantly reduce the incidence of fraud, for example:

  • employment contracts which set  out expectations of ethical behaviour regarding  conflicts of interest,  confidentiality obligations and consequences of misconduct;
  • a comprehensive HR program  including a Code of Conduct or explicit standards of ethical behaviour, policies covering gifts and gift registers, conflicts of interest, use of credit cards,  entertainment  and travel expenses, transparent recruitment processes, discipline and termination policies;
  • a Whistleblower program which establishes a mechanism for employees and others to report corrupt, unethical or illegal conduct, backed up by an Internal Grievance program which provides another avenue for employees to raise issues of concern;
  • training and testing for staff and directors in establishing a clear understanding of what constitutes ethical and unethical conduct, ‘the way we do things around here’; and
  • consistent managerial action when faced with unethical behaviour.

Finally, another key finding in the BDO survey was that 54% of respondents did not report fraud to the police because of concerns relating to the impact of future funding opportunities and damage to the organisation’s reputation.  That means that when recruiting, it becomes crucial to conduct reference checks with former employers to reduce the chance of that incredibly experienced and qualified applicant being and an incredibly persuasive fraudster.


How can CompliSpace help?

CompliSpace’s comprehensive range of cost effective human resources, Whistleblower, Boardroom policies, procedures, training and testing modules, ensure that directors, managers and staff know what is expected of them and have key tools and information at their fingertips at all times.

This enables a business to meet its workplace relations obligations while building a positive corporate culture, capturing knowledge and saving time. For more information, contact us on the details below:

P: 1300 132 090



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Financial Services Updates

Financial Services Updates