Hi,
If you run a nonprofit, the most expensive risk you carry usually isn’t a missed filing or a failed audit. It is much quieter than that: in most small organizations, one trusted person records the donations, writes the checks, and reconciles the bank account, and nobody ever checks their work.
That is exactly the gap fraud walks through. Nonprofits lose a median of $76,000 per fraud case, and more than half of all fraud traces back to weak or missing internal controls – the kind small organizations almost never have, because everyone knows everyone and questioning the books feels like an accusation.
It usually isn’t a villain. It is a long-tenured, well-liked person under quiet financial pressure, in a role where the money and the record of the money run through the same set of hands. By the time it surfaces – often only because someone finally spoke up – the cash, and sometimes the organization’s reputation, are already gone.
The fix does not require a big team or a big budget. A few controls stop most of it:
- Split the duties.Β The person who handles money should not also be the one who records it and reconciles the account. Even a two-person split closes most of the gap.
- Have someone outside the process open the bank statement.Β A treasurer or second staffer reviewing the unopened statement each month catches an enormous share of problems.
- Require a second approvalΒ on payments above a set dollar amount, and on any new vendor.
- Put a whistleblower policy and a simple anonymous reporting channel in place.Β A tip is the single most common way fraud gets caught, more than three times any other method – but only if people have a safe way to report.
- Show the board real financials every month, not a summary once a year. Oversight that happens once a year is not oversight.
None of this is about distrust. It is about protecting the mission, the board, and the honest staff who deserve a system that clears them automatically.
This is the kind of work we do alongside the filings – designing controls that fit a small team, reviewing reconciliations with an outside set of eyes, and giving your board reporting it can actually govern from – a safeguard.
Reply to this email by Friday and we will set up a free 15-minute call with one of our senior nonprofit specialists to walk through where your controls are strong and where the gaps are. No filing required.
Sincerely,
—
George Dimov, CPA
Licensed and Insured
(833) 829-1120 toll free
(212) 994-8081 Fax
www.dimovtax.com