Friday, August 20, 2010

Fraud … and Lessons in the Lack of Accountability

The August 16, 2010 edition of The Wall Street Journal featured two poignant articles on fraud. While the examples in the articles are from the for-profit world, this is a teachable moment on accountability for the Christian nonprofit arena as well.

There were other issues than money involved in the departure of Mark Hurd as Hewlett-Packard’s CEO. But apparently, it was something as simple as inaccurate expense reporting that tripped him up.

In another story, the founder of Courette Building Systems, Salem, VA, tells how he placed one employee in charge of both receipts and disbursements. Among other fraudulent acts, the employee pocketed over $300,000 he was supposed to send to the IRS to cover payroll taxes.

At Interactive Solutions, Memphis, TN, the founder and CEO took some occasional days off while mourning the death of his brother. His bookkeeper had been referred by an attorney and someone that had sung with her in the church choir. After reading an article about fraud, something clicked with the CEO and he said to himself, “That could happen to me.” He began looking and quickly discovered thefts in the form of bogus bonuses and commissions by the dozens.

In both instances, the guilty parties are serving time in prison but the losses were mostly unrecovered and the fraud nearly devastated the two organizations.

According to the Association of Certified Fraud Examiners, 31 percent of all business frauds nationally were within companies of fewer than 100 employees. Only 21 percent were committed in companies with over 10,000 employees. So most fraud happens in small organizations. It can happen to you!

While it is not practical to illuminate all fraud, it is possible to minimize the risk of fraud. See

The challenge is to respond but not over-react when fraud is discovered. Determine where your organization is most at risk and investigate those risks. Modify procedures to reduce risks. But the mission of the nonprofit must go on—and your nonprofit organization can be stronger because of the painful fraud that you experienced.

Your mission is still the main thing. Don’t take your eye off the ball.