Fraud, Finance and   Freaking Out!Risk and Crisis Management      For Nonprofits             Presenter     Miriam Robeson,...
Why Are We Here?Information Level –IntermediateAssumes familiarity with nonprofit finance
Why Are We Here – Part 2The Horror Stories and Bad Press - 2012
Why We are Here – Part 3The IRS
Financial Accountability for               Nonprofits   Compliance   Accountability   Best Practices   Risk Management...
 Government and other  technical requirements                    Compliance
Compliance - State
Compliance - Federal    Failure to file – automatic revocation of §501(c)(3)                            status
Updated slideCompliance – IRSIs your nonprofit “on the list?” IRS Publication 78– no longer published Search-able databa...
Compliance - Employment
Compliance - UBIT
 Requirements to protect the  financial integrity of the  nonprofit                 Accountability
Accountability
What is Financial Accountability?The Board is Responsible for:
Handout – 10 Tips for Keeping an Eye on FinancesFinancial OversightWatch the money - Watch the people
Handout – 10 Financial Priorities for Nonprofit Boards       Accountability - Financial Financial Policies Financial Con...
Handout – Nonprofit Financial Control Policy   Accountability -   Financial Governance Policies Policies for –   Handlin...
Handout – Document Destruction PolicyAccountability - Financial Controls
Handout – Conflict of Interest PolicyAccountability - Governance
Accountability - Conflicts of Interest
Accountability - Personal Benefit
Abuse of Nonprofit Status Improper Conduct Executive Compensation “Private Inurement”     Excessive compensation     ...
Consequences of Abuse of Status IRS Consequences – $$     Fines to Nonprofit     Fines to Board of Directors     Fines...
Accountability - Ethics
Nonprofit Ethical Issues - Examples Improper donor acknowledgements    Donations of time are not tax-deductible Donor “...
Handout – Whistleblower PolicyMore Examples - Ethics
Transparency – Credibility to Public Regularly provide information to the Public
 Steps to Identify and manage  nonprofit financial risk                  Risk                  Management
Risk Management for            Nonprofits Best Practices to Prevent Financial  Crisis   Identify Risk   Ranks Risk   I...
Risk Management – D&O InsuranceDirectors & Officers Insurance Protects - Board and Key Staff
Handout – Risk Management PolicyRisk Management PlanTypes of Risk to Manage
Risk Management - People Poor economy has resulted in an increase in  criminal conduct against nonprofits Embezzlement b...
Issues of Fraud and the Nonprofit Sector
Fraud in the Nonprofit Sector is on the Rise!  2012 Global Fraud Study, Association of Certified Fraud Examiners
How is Fraud Detected?2012 Global Fraud Study, Association of Certified Fraud Examiners
How Long Does it Take to Discover Fraud?2012 Global Fraud Study, Association of Certified Fraud Examiners
Behavior Red   Flags
Handout -- Asset MisappropriationsWhat are the most common types of fraud?  2012 Global Fraud Study, Association of Certif...
Who Commits Fraud? How Much?2012 Global Fraud Study, Association of Certified Fraud Examiners
How is Fraud Punished? Termination of employment = 72% No punishment = 7% Quit/disappeared = 8% Referral to law enforc...
What is the likelihood of recovering funds? (1)    Nothing recovered = 48%    Complete recovery = 16%    Partial recove...
Who Commits Fraud?                            Handout – Fraud Prevention Checklist                                        ...
Handouts – 10 Ways to Catch Fraud and Mistakes from                                                                Outside...
Handout – Someone Stole the Cashbox!Nonprofits and Fraud   Handout – Preventing and Responding to FraudWhat to do when it ...
PR for Nonprofits     Handout – Public Relations During Nonprofit CrisisPublic Relations During Fraud Crisis
Preventing Fraud
Crisis Management - The Good News Nonprofits showed growth in contributions in 2011 compared with 2010     Source: Guides...
Crisis Management 101Surviving Financial Downturn Step 1 – Review the Organization   How well do you meet your budget   ...
Crisis Management 101Surviving Financial Downturn Step 2 – Make a Plan   Risk Management Plan   What can you reduce and...
Crisis Management 101Surviving Financial Downturn Step 3 – Creative Options   New Fund Raising Opportunities      Socia...
Crisis Management 101Surviving Financial Downturn   Step 4 – Acute Crisis Management      Reduction in programs         ...
Financial Accountability     for Nonprofits
Any Questions? Thank you for your attention!    Miriam Robeson, Attorney Today’s materials are available on         Miriam...
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Ff&f lafayette september 18, 2012 a

  1. 1. Fraud, Finance and Freaking Out!Risk and Crisis Management For Nonprofits Presenter Miriam Robeson, Attorney September 18, 2012
  2. 2. Why Are We Here?Information Level –IntermediateAssumes familiarity with nonprofit finance
  3. 3. Why Are We Here – Part 2The Horror Stories and Bad Press - 2012
  4. 4. Why We are Here – Part 3The IRS
  5. 5. Financial Accountability for Nonprofits Compliance Accountability Best Practices Risk Management Crisis Management
  6. 6.  Government and other technical requirements Compliance
  7. 7. Compliance - State
  8. 8. Compliance - Federal Failure to file – automatic revocation of §501(c)(3) status
  9. 9. Updated slideCompliance – IRSIs your nonprofit “on the list?” IRS Publication 78– no longer published Search-able database: http://www.irs.gov/Charities-&-Non- Profits/Exempt-Organizations-Select-Check Search: IRS select check NOTE - Incorporation as a State (Indiana) nonprofit does not equal IRS §501(c)(3) status
  10. 10. Compliance - Employment
  11. 11. Compliance - UBIT
  12. 12.  Requirements to protect the financial integrity of the nonprofit Accountability
  13. 13. Accountability
  14. 14. What is Financial Accountability?The Board is Responsible for:
  15. 15. Handout – 10 Tips for Keeping an Eye on FinancesFinancial OversightWatch the money - Watch the people
  16. 16. Handout – 10 Financial Priorities for Nonprofit Boards Accountability - Financial Financial Policies Financial Controls Monitor appropriate use of nonprofit funds Audit - review
  17. 17. Handout – Nonprofit Financial Control Policy Accountability - Financial Governance Policies Policies for –  Handling Money  Recording Money  Reporting Money
  18. 18. Handout – Document Destruction PolicyAccountability - Financial Controls
  19. 19. Handout – Conflict of Interest PolicyAccountability - Governance
  20. 20. Accountability - Conflicts of Interest
  21. 21. Accountability - Personal Benefit
  22. 22. Abuse of Nonprofit Status Improper Conduct Executive Compensation “Private Inurement”  Excessive compensation  Unreasonable Rental Agreements  Unreasonable lending agreements  Unreasonable sales transaction
  23. 23. Consequences of Abuse of Status IRS Consequences – $$  Fines to Nonprofit  Fines to Board of Directors  Fines to Staff  PERSONAL LIABILITY FOR ALL! IRS Consequences – Revocation of Nonprofit Status
  24. 24. Accountability - Ethics
  25. 25. Nonprofit Ethical Issues - Examples Improper donor acknowledgements  Donations of time are not tax-deductible Donor “influence-buying” Improper arrangements with donors  Failing to include both spouses in joint gift paperwork Staff/ED/Board/Volunteer accepting gifts from donors Failing to take responsibility (“Not My Fault”)
  26. 26. Handout – Whistleblower PolicyMore Examples - Ethics
  27. 27. Transparency – Credibility to Public Regularly provide information to the Public
  28. 28.  Steps to Identify and manage nonprofit financial risk Risk Management
  29. 29. Risk Management for Nonprofits Best Practices to Prevent Financial Crisis  Identify Risk  Ranks Risk  Identify Policies to manage risk  Implement protections  Implement procedures in event of crisis
  30. 30. Risk Management – D&O InsuranceDirectors & Officers Insurance Protects - Board and Key Staff
  31. 31. Handout – Risk Management PolicyRisk Management PlanTypes of Risk to Manage
  32. 32. Risk Management - People Poor economy has resulted in an increase in criminal conduct against nonprofits Embezzlement by employees Embezzlement by officers Fraud from “outsiders” Phrase of the Day – “Trust But Verify”
  33. 33. Issues of Fraud and the Nonprofit Sector
  34. 34. Fraud in the Nonprofit Sector is on the Rise! 2012 Global Fraud Study, Association of Certified Fraud Examiners
  35. 35. How is Fraud Detected?2012 Global Fraud Study, Association of Certified Fraud Examiners
  36. 36. How Long Does it Take to Discover Fraud?2012 Global Fraud Study, Association of Certified Fraud Examiners
  37. 37. Behavior Red Flags
  38. 38. Handout -- Asset MisappropriationsWhat are the most common types of fraud? 2012 Global Fraud Study, Association of Certified Fraud Examiners
  39. 39. Who Commits Fraud? How Much?2012 Global Fraud Study, Association of Certified Fraud Examiners
  40. 40. How is Fraud Punished? Termination of employment = 72% No punishment = 7% Quit/disappeared = 8% Referral to law enforcement = 65% Prosecutor declines to prosecute =25%(Note – numbers total greater than 100% because more than one action is taken) “An Investigation of Fraud in Nonprofit Organizations: Occurrences and Deterrents,”Greenlee, Fischer, Gordon and Keating, 2006, Hauser Center for Nonprofit Organizations
  41. 41. What is the likelihood of recovering funds? (1)  Nothing recovered = 48%  Complete recovery = 16%  Partial recovery = 36% WHO IS MORE LIKELY TO BE VICTIMIZED? (2)  Small organizations are much more likely to be a victim of occupational fraud  Lack of anti-fraud controls in smaller organizations contributes to vulnerability1. “An Investigation of Fraud in Nonprofit Organizations: Occurrences and Deterrents,”Greenlee, Fischer, Gordon and Keating, 2006, Hauser Center for Nonprofit Organizations2. 2010 Global Fraud Study, Association of Certified Fraud Examiners
  42. 42. Who Commits Fraud? Handout – Fraud Prevention Checklist Handout – Sample Board Anti-Fraud Policy High-level fraudsters (Officers/Directors) cause greatest damage – more than 3x more costly, and take longer to detect. More than 85% have never been previously charged or convicted. Behavior warning signs: Living beyond means andDO ANTI-FRAUD difficulty experiencing financial MEASURES HELPPREVENT FRAUD? YES – The 2010 Global Fraud Study found that organizations that had common controls in place had  Significantly fewer losses (in # and $)  Shorter time-to-detection 2012 Global Fraud Study, Association of Certified Fraud Examiners
  43. 43. Handouts – 10 Ways to Catch Fraud and Mistakes from Outside Handout – 15 Ways to Minimize Employee FraudPrimary Control Weaknesses for Victim Orgs.
  44. 44. Handout – Someone Stole the Cashbox!Nonprofits and Fraud Handout – Preventing and Responding to FraudWhat to do when it happens to you!
  45. 45. PR for Nonprofits Handout – Public Relations During Nonprofit CrisisPublic Relations During Fraud Crisis
  46. 46. Preventing Fraud
  47. 47. Crisis Management - The Good News Nonprofits showed growth in contributions in 2011 compared with 2010 Source: Guidestar 2011 Nonprofit Fundraising Survey
  48. 48. Crisis Management 101Surviving Financial Downturn Step 1 – Review the Organization  How well do you meet your budget (typical)?  What shortfall do you anticipate?  How long can you survive at reduced budget levels?  How are you affected by each funding source?
  49. 49. Crisis Management 101Surviving Financial Downturn Step 2 – Make a Plan  Risk Management Plan  What can you reduce and maintain current levels of service?  What can you reduce and maintain minimum service?  Where can you increase funding  Lapsed donors, new donors, alternate funding sources
  50. 50. Crisis Management 101Surviving Financial Downturn Step 3 – Creative Options  New Fund Raising Opportunities  Social media, networking, micro-fundraising  Collaborations with similar or complementary nonprofits  Spin-off/Re-Master current activities
  51. 51. Crisis Management 101Surviving Financial Downturn  Step 4 – Acute Crisis Management  Reduction in programs  Prioritize – what MUST you retain?  Reduce scope/ Increase fees  Reduction in Staff  Reduction in Staff ≠ previous service levels  Reduction in Staff = do it right  What is your “limit”?  Minimum financial - resource - program - mission  PR in times of Crisis – Preserving public image
  52. 52. Financial Accountability for Nonprofits
  53. 53. Any Questions? Thank you for your attention! Miriam Robeson, Attorney Today’s materials are available on Miriam’s Website:http://blog.lawlatte.com/index.php/ 2012-workshops/

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