Month: March 2014

Preventing Fraud in Nonprofit Organizations

By Robert Marchbanks, CPA/CGMA

Audit Manager at Atchley & Associates, LLP

Most nonprofit organizations operate with limited staff and in a manner that assumes all employees are trustworthy. While the majority of employees are honest and believe in the organization’s mission, there are employees that may face financial hardship from a spouse losing a job, incurring medical bills, or sending a child to college. Other employees believe they are entitled to higher pay and will “justify” embezzling from the organization.

Donald Cressey’s hypothesis on why people commit fraud is referred to as the fraud triangle: Motivation, Rationalization, and Opportunity.

  • Motivation or pressure may include financial problems, addictions like gambling, shopping or drugs, pressure to show good performance or results, or just the thrill of being able to get away with something.
  • Rationalization is when individuals think they are justified because they are underpaid, or it’s for their family, or they need it now but they’ll pay it back before anyone notices.
  • Opportunity is created when there are weaknesses in controls. Individuals think they won’t get caught because nobody is looking, or reviewing, or performing reconciliations and reviews.

While an organization may not be able to prevent motivation or rationalization, there are certain steps the organization can take to minimize the opportunity and the risk of an employee committing fraud. These include:

  1. Set the tone at the top – Management should set the tone at the top for ethical behavior in the organization.
  2. Segregation of duties – No single person should be responsible for receiving, depositing, recording, and reconciling receipt of funds. No single person should be responsible for approving payments, disbursing funds, recording the disbursement transaction, and reconciling the bank statement.
  3. Reconcile accounts in a timely manner – Bank accounts should be reconciled timely by an individual not responsible for recording cash receipts and disbursements.
  4. Documentation and Authorization – You should have invoices to support cash disbursements and the expenditures should be approved by someone outside of accounting. The approval should be in the form of a signed purchase order or signed approval on the invoice. Maintain proper accounting records for all transactions.
  5. Written whistleblower and conflict of interest policies – The whistleblower policy should provide a phone number for the employee to call to report the fraud and remain anonymous. The conflict of interest policy should prevent private inurement.
  6. Look for employees living beyond their means – Be aware of the type of car the employee drives, the vacation destinations they travel to, and the jewelry that they wear.
  7. Carry insurance for employee theft – Even with the fraud policies and procedures in place, you should carry insurance to cover employee theft. This will minimize the risk of the financial hardship of the nonprofit organization.
  8. Keep check stock in a secure location accessed only by authorized personnel.

While the above list is not all-inclusive, hopefully it will encourage you to review your current policies and procedures at your nonprofit organization and implement procedures to deter and detect employee fraud. Please let us know if we can help in reviewing your risk assessment of your policies and procedures.

Top Ten Missing Items in your Tax Documents

By Sharon Westhoven, CPA

Tax Supervisor at Atchley & Associates, LLP

10. You had a new baby – Congratulations!

We’ll need his/her full name, birthdate and social security number.

9. Your email got hacked and you changed your email

We all use email on a regular basis. Make sure we have the best email for you and your spouse.

8. You bought (and/or sold) your house – Fantastic!

Now we need the HUD-1, otherwise known as your closing statement. Hopefully you didn’t pack it up in one of those boxes before you moved. And your new address is??

7. You generously donated your vehicle to Goodwill

Make sure the charity issues you a 1098-C showing how much they received on the sale of the vehicle.

6. Your company is doing well – prices are up – so you sold stock options this year

You should have received a stack of forms showing prices and taxes withheld right after it happened – and of course you put them in a very safe place. Now’s the time to dust them off and add them to your tax information. BTW, if you exercised (ISO) options and held the stock, ALERT!!! This could trigger additional taxes (AMT) – Call us!

5. A close relative passed away and you are named executor of the estate

OMG – that’s for another blog… plase come in and let’s talk about it.

4. You had identity theft this year

Again, the topic for another blog… if you were issued a PIN from the IRS, make sure to include the postcard with your PIN (and your spouse’s).

3. You broker had a hot new investment. Now you have these funny looking forms called K-1’s and pages of instructions

DON’T throw them away – they’re as important as your W-2! Make sure we get ALL the pages and how much you paid for it.

2. You decided to start a business with your _______ (friend, brother, cousin…) and they are taking care of the taxes

Whoa! You might have K-1’s coming your way. Review #3 and call us!

and the number 1, most forgotten item in your tax documents is…

1. The January 15th Estimated tax payment!

Remember, we are here to help. Sometimes changes are BIG (birth, marriage, divorce, death) and other times LITTLE (new cell phone number). Having this information at the start of your return process enables us to provide comprehensive and efficient service to you this year and for years to come.