Why Nonprofit Organizations are Vulnerable to Fraud Risk

The fraud risk matters for all companies and organizations, including nonprofit organizations. Data from Report to The Nation 2020 shows that fraud cases recorded as many as 191 cases with corruption cases took first place as much as 40% and were followed by billing and cost reimbursement cases.

The estimated non profit losses have the smallest average of $ 75,000 to the largest average of $ 639,000. The losses incurred are not as large as the organization or company profit, but the amount is enough to make nonprofit organizations collapse because of limited financial resources.

Beyond financial losses, nonprofit organizations have a greater potential fraud impact, which is reputation. Reputation is an important asset for nonprofit organizations as most nonprofit organizations depend on support from donors, grants, or other sources of funds.

Weaknesses in the Nonprofit

Some weaknesses pose fraud risks to nonprofit organizations. Weak Internal control is the main weakness mentioned in the report. Such weakness takes place because most of the organizations only hire employees from the same interests and vision of the organization. Therefore,  the organizations have limited employee resources who carry out internal control that has never been their field of expertise and experiences. 

An important step to control the risk of fraud in nonprofit organizations is to implement strong internal control to detect the possibility of fraud in the organization and even prevent fraud in the future.

The most Effective Method for Detecting Fraud in the Nonprofit

The whistleblowing system as part of internal control is an early detection method of fraud that needs to be applied by nonprofit companies. Why? The report states that as many as 40% of fraud cases found in non-profit organizations are detected through tips. In other words, tip is the most effective early fraud detection method.

The whistleblowing system requires the company to raise awareness among their stakeholders to recognize the characteristics and red flags of fraud, as well as how important it is for the stakeholders to take part to mitigate the wrongdoings by reporting their findings. 

Integrity Indonesia as a company that has more than seventeen years working in the field of compliance has extensive experience in providing whistleblowing services for clients from various business backgrounds. Through the Canary Whistleblowing System, Integrity presents a combination of several reporting channels that are centralized on the website application thereby increasing our client’s accessibility to reports, while still ensuring the anonymity of the reporter. Contact us for further information about Canary Whistleblowing System.

Written by: Aqilla N

Photo by Kat Yukawa on Unsplash