Forensics Journal - Stevenson University 2014 | Page 65

STEVENSON UNIVERSITY

Fraud Predictors and Non-Profit Organizations
Renita Dandridge-Shoats

As of 2006, the Association of Certified Fraud Examiners estimated
that non-profit organizations experience approximately $40 billion in
losses due to fraud (Greenlee et al. 677). While this reflects an average
6% of revenue lost to fraud across all organizations it still represents a
nominal amount of funding that is not available for these non-profit
organizations to meet obligations and fulfill missions of assisting
those in need (Greenlee et al. 677),. Quite literally, “every dollar lost
to fraud represents a lost ability to provide needed public services”
(Greenlee et al. 677). Reducing fraud for non-profit organizations
allows these entities to provide additional benefits and services to program participants. As non-profit organizations face “increased public
scrutiny,” reducing fraud also strengthens their integrity and reputation
as legitimate and trustworthy operations which are fiscally responsible
for the procurement, management, and usage of the charitable donations they receive (Greenlee et al. 677). As organizations experience
fraud and become aware of relevant fraud risk factors, they can analyze this historical data to identify patterns and incorporate valid risk
factors to develop functional fraud predictors. This article discusses
different types of fraud that affect non-profit organizations, identifies
non-profit fraud risk factors, and focuses on the use of possible fraud
predictors to assess and mitigate fraud risk for non-profit organizations.
By understanding known fraud risk factors and using various fraud
predictors, non-profit organizations can effectively and proactively
address, and possibly minimize, their exposure to fraud-related losses.

External frauds are committed against the non-profit organization by
persons outside the organization, such as vendors, grant applicants,
sub-recipients, and program participants. The most common forms
of external fraud are vendor billing schemes, sub-recipient fraud,
and financial assistance fraud. Vendor billing schemes may involve
overbilling the non-profit organization or billing the non-profit
organization for fictitious goods or services. Sub-recipient fraud
can involve fraudulent reporting of program data to the non-profit
organization awarding the grant. Financial assistance frau