Fraud has the potential to affect every business or organization. However, the risk of fraud within volunteer-led organizations is often overlooked. Volunteer-led organizations such as charities, religious groups, and association-governed communities are highly susceptible to fraud. In these organizations, individuals are taking time, often several hours each week, out of their busy lives and dedicating it to an organization that is meaningful to them. Although these individuals are volunteering their time and talent, they often lack the financial knowledge necessary to effectively oversee those executing the financial operations of the organization. Further, anti-fraud controls are often minimal, or nonexistent, within smaller organizations, which make them prime targets for fraudsters.
The following describes key fraud considerations for volunteer-led organizations:
Organizations should review their current practices to ensure that they are carried out in accordance with any of the organization’s governing documents. The processes for board member elections, voting, selecting contractors and other financial policies should be as transparent as possible.
Although implementing segregation of duties is often challenging for smaller organizations, every effort should be made to divide financial responsibilities. Simple steps such as requiring two signatures on checks, ensuring that a different individual is responsible for reconciling accounts, and setting a dollar threshold for payments allowed to be made without the approval of all board members can significantly reduce the potential for fraud.
Depending on the type of organization, certain states may require an annual audit. Regardless of whether or not it is required, it might be prudent to ensure that an independent audit is performed periodically.
In most organizations, reasonable financial information should be readily available to its members. Be mindful of any difficulties or delays experienced with receiving requested information. While it is not necessarily an indication of fraud, a lack of transparency and communication might create additional fraud risk. Therefore, every effort should be made to ensure that there are clear lines of communication within the organization.
The smaller the organization, the larger the potential impact fraud might have. In order to help mitigate the fraud risks associated with volunteer-led organizations, board members and members should take the time to learn best practices, ask questions, and work to implement as many anti-fraud controls as possible.
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Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.