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Ff&f lafayette september 18, 2012 a

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  • 1. Fraud, Finance and Freaking Out!Risk and Crisis Management For Nonprofits Presenter Miriam Robeson, Attorney September 18, 2012
  • 2. Why Are We Here?Information Level –IntermediateAssumes familiarity with nonprofit finance
  • 3. Why Are We Here – Part 2The Horror Stories and Bad Press - 2012
  • 4. Why We are Here – Part 3The IRS
  • 5. Financial Accountability for Nonprofits Compliance Accountability Best Practices Risk Management Crisis Management
  • 6.  Government and other technical requirements Compliance
  • 7. Compliance - State
  • 8. Compliance - Federal Failure to file – automatic revocation of §501(c)(3) status
  • 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. Compliance - Employment
  • 11. Compliance - UBIT
  • 12.  Requirements to protect the financial integrity of the nonprofit Accountability
  • 13. Accountability
  • 14. What is Financial Accountability?The Board is Responsible for:
  • 15. Handout – 10 Tips for Keeping an Eye on FinancesFinancial OversightWatch the money - Watch the people
  • 16. Handout – 10 Financial Priorities for Nonprofit Boards Accountability - Financial Financial Policies Financial Controls Monitor appropriate use of nonprofit funds Audit - review
  • 17. Handout – Nonprofit Financial Control Policy Accountability - Financial Governance Policies Policies for –  Handling Money  Recording Money  Reporting Money
  • 18. Handout – Document Destruction PolicyAccountability - Financial Controls
  • 19. Handout – Conflict of Interest PolicyAccountability - Governance
  • 20. Accountability - Conflicts of Interest
  • 21. Accountability - Personal Benefit
  • 22. Abuse of Nonprofit Status Improper Conduct Executive Compensation “Private Inurement”  Excessive compensation  Unreasonable Rental Agreements  Unreasonable lending agreements  Unreasonable sales transaction
  • 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. Accountability - Ethics
  • 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. Handout – Whistleblower PolicyMore Examples - Ethics
  • 27. Transparency – Credibility to Public Regularly provide information to the Public
  • 28.  Steps to Identify and manage nonprofit financial risk Risk Management
  • 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. Risk Management – D&O InsuranceDirectors & Officers Insurance Protects - Board and Key Staff
  • 31. Handout – Risk Management PolicyRisk Management PlanTypes of Risk to Manage
  • 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. Issues of Fraud and the Nonprofit Sector
  • 34. Fraud in the Nonprofit Sector is on the Rise! 2012 Global Fraud Study, Association of Certified Fraud Examiners
  • 35. How is Fraud Detected?2012 Global Fraud Study, Association of Certified Fraud Examiners
  • 36. How Long Does it Take to Discover Fraud?2012 Global Fraud Study, Association of Certified Fraud Examiners
  • 37. Behavior Red Flags
  • 38. Handout -- Asset MisappropriationsWhat are the most common types of fraud? 2012 Global Fraud Study, Association of Certified Fraud Examiners
  • 39. Who Commits Fraud? How Much?2012 Global Fraud Study, Association of Certified Fraud Examiners
  • 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. 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. 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. Handouts – 10 Ways to Catch Fraud and Mistakes from Outside Handout – 15 Ways to Minimize Employee FraudPrimary Control Weaknesses for Victim Orgs.
  • 44. Handout – Someone Stole the Cashbox!Nonprofits and Fraud Handout – Preventing and Responding to FraudWhat to do when it happens to you!
  • 45. PR for Nonprofits Handout – Public Relations During Nonprofit CrisisPublic Relations During Fraud Crisis
  • 46. Preventing Fraud
  • 47. Crisis Management - The Good News Nonprofits showed growth in contributions in 2011 compared with 2010 Source: Guidestar 2011 Nonprofit Fundraising Survey
  • 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. 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. 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. 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. Financial Accountability for Nonprofits
  • 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/