Melissa Luke CEO and Co-founder Yomo World

Many people think that non-profit organizations are unlikely to be victims of theft, because they think the organizations are staffed by employees who are altruistic and care deeply for the organization’s mission and the people for whom it serves. Unfortunately it is estimated that non-profit organizations suffer an estimated $40 billion loss to theft annually.

In my experiences as a revenue officer for the IRS, and as a business consultant tasked to investigating fraud, I learned that those who seemed the least likely to steal were often the ones who actually stole.  The nice little 40-year-old lady, who has worked for the organization for 7 years, making less than $50,000 per year, seemed so charming. The president’s best friend, who has for years been running a division dedicated to helping small children get new shoes, seemed saintly. The wife, who has run the accounting department and is married to the CEO, always brought cookies.

We trust these people. They are there to help other people. They’re not motivated to get rich.  Unfortunately the profiles of the charity workers listed above are some of the first that a mismanagement and fraud specialist looks toward. People donate to charities because charities support causes they care about.  Having their money go towards an employee’s BMW or lost in a casino slot machine is a tremendous betrayal of their trust.

As a business analyst in fraud, my first steps were to investigate the following in no particular order:

1. The bookkeepers, especially if they had been employed with the organization for more than three years.
2. Relatives and friends working in the organization under the president or director.  
3. The CFO/CEO or the president.
4. Any long time employee who seemed to have a lifestyle that was out of proportion with his salary.  For example, how did a $40K a year program specialist afford an $800K  home?
5. Any person who was involved in an extra-marital affair in senior management. This is far easier to find out as an outsider than you would think. People talk.

Clearly almost everyone has the ability to steal from a non-profit. Charities are an attractive target for theft because they are truly populated with good people dedicated to a cause.  They do not think to guard against the “wolf” sneaking into the flock.  When a theft is discovered, many charities are also reluctant to report the theft for fear the publicity will upset their donors.  

Here’s a scenario. Let’s see how you would operate as a fraud detective:

Three new employees are hired in a non-profit organization: a part-time bookkeeper, a program specialist, who has access to small amounts of cash, and a new senior manager hired to direct a large group of service providers within the organization. The company finds that after the first three months of the new hires’ employment, $10,000 is missing. Where would you start your investigation?

I would first find out if one of the new employees was a friend or relative of the senior leadership in the organization. If there was not a personal connection, I would start by looking towards the existing management and especially the CFO before concentrating on the new employees. My first assumption would be that an insider was stealing and planning to blame a new employee if the theft were discovered. This scenario has occurred several times in my experience.  Investigating fraud is intriguing but you have to think like a criminal. I’m a little concerned what that says about me personally.

If you are running a non-profit and you want to guard against your organization becoming a victim of fraud, you must think like a criminal. People are depending on you to be a careful steward of their donations.  Ask your staff to figure out how they might steal from the organization. Collect the ideas, and in a group feedback forum discuss how these schemes can be prevented. If you are a volunteer for a non-profit, ask the paid staff to conduct this exercise. Your organization will receive two huge benefits from this exercise.    

You will have substantially decreased the opportunity for employee theft.

You will scare any current thief into quitting his larceny.

Let’s thank those people dedicated to helping others through their work in charity, and let’s catch the “wolves” at the same time! The critical action is to educate the entire staff on how to both spot and to prevent fraud. Awareness decreases theft. Non-profits especially need to be aware of and to train for theft prevention.

Since this is National Fraud Awareness Month, let’s be aware.  But don’t go to work looking for the “types” of people who steal listed above and think differently of them.  The lovely cookie bringer is probably just a lovely cookie bringer. The bad guy could be anyone from the president to the janitor. Spend a day motivating your employees and have fun in the process.