Protecting Yourself and Your Donors From Fraud

Jill S. G. Palmeter, CPA, Partner (Apr, 2015)

Dedicated donors are often the financial heart and soul of a not-for-profit organization (NPO).  Without donors many NPOs would not be as successful or even exist.  That is just one of the many reasons why these organizations should be operating with as strong a fraud-resistant culture as possible.  Newspaper headlines announcing the theft or misappropriation of assets from a charity are all too common and can be very damaging to the reputations of charities everywhere.  Best practices to protect both your donors and your NFP during a fundraising event would suggest the following:

  1. Good recordkeeping and documented policies and procedures regarding donated merchandise received prior to a large fundraising event are essential.  There should be segregation of duties over both the receipt and distribution of these contributed assets.
  2. The challenge of significant amounts of funds collected at busy events and inadequate controls over those funds may present problems.  The opportunity exists to slip cash or checks into one’s pocket before it has been counted and recorded.  It might never be missed, as there are no accounts receivable on the NPO’s books.
  3. A large and busy event might give rise to last minute contributed merchandise not being tracked as carefully as it should be. Try to stay ahead of the curve by anticipating a verifiable process for accepting, tracking and selling these donated items, as well as recording and depositing the applicable receipts and thanking the donors.
  4. Many donors will pay for purchased items or make donations with their credit cards. Again, good internal controls will help guarantee that the amount charged to the credit card is correctly recorded internally by the NPO, while keeping the donors’ information secure.

The concept of segregation of duties ensures that no single person has complete control over a single transaction, helping a NPO have strong internal controls.  After all, a large fundraising event should be on the front page of the local newspaper for its great success, and not for the fraud that was perpetrated there.


DB&B…Educating to Empower

The information reflected in this article was current at the time of publication. This information will not be modified or updated for any subsequent tax law changes, if any.