Not-For-Profit News

June 2016 HELPING NON PROFITS FULFILL THEIR MISSION

Skimming cash, purchasing schemes and financial statement fraud are three very different types of fraud that nonprofits must prevent, detect and insure against.

Still, behind each of them—and every variety of deliberate, deceptive act against nonprofits—there’s a fundamental and shared dynamic at play.

Fraud isn’t just an operational or financial risk. It’s inherently a human risk, meaning it often crosscuts numerous functions and departments within a nonprofit organization. Not only that, but the people behind these acts are complex. They are pressured by varying circumstances, motivated by different opportunities and self-assured by their own unique rationale.

Making matters more complicated, fraud is not always a solo act. In fact, a 2016 ACFE report found that 46 percent of fraud cases involve multiple perpetrators, meaning that when fraud does occur, the web of nefarious activity often extends to surprising depths within an organization.

To combat this threat, nonprofits face a critical need to address fraud from the top— starting with more guidance and engagement from leaders and boards to create an anti- fraud environment and oversee a fraud risk management function. Realistically, though, due to their mission-driven focus and more limited operating budgets, nonprofit leaders are often left with less time and fewer resources at their disposal to proactively develop anti-fraud governance measures. One of the most important deterrents of fraud is knowing that the organization has no tolerance for it and will act accordingly to detect it and take appropriate action if identified.

Given these challenges, how can nonprofits’ leaders and boards establish and enforce governance? To start they can focus on these four key areas:

CATALYST REQUIRED: Nonprofits need a high-ranking sponsor to get fraud risk management off the ground. This leader and his/her team’s first order of business should be deciding whether their organization’s fraud risk management will be integrated into the existing risk management function (which typically focuses on strategic, operational, reporting and compliance risks)— or whether it will be separate. Either way, the goal is the same: embed a risk management element into the daily activities of all your personnel.

RESPONSIBILITIES AND STRUCTURES: With your management process in place, establish a governance structure for it, including designated oversight responsibilities at the board level, such as an audit committee. Keep in mind, this framework and the tools your organization uses should be scaled to fit both your size and your available resources.

NONPROFIT FRAUD: IT’S A PEOPLE PROBLEM, SO COMBAT IT WITH GOVERNANCE By: Laurie De Armond, CPA and Gerry Zack, CPA – BDO

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It’s impossible to completely “fraud-proof” any organization, so understand the weak points in your infrastructure and organization, and then work backwards to execute. Also, while fraud prevention is ideal, many nonprofits have to weigh the costs and practicality of preventive processes versus detective measures.

ENGAGE AND EDUCATE:

Especially when faced with resource constraints, nonprofits should utilize all their personnel in an ongoing system of fraud deterrence. Above all, engage with your employees through workshops and trainings in which you educate them on why people perpetrate fraud, which red flags to watch for and what resources are available to them, such as whistleblower policies, reporting systems and hotlines. Awareness throughout your organization can be the single most effective fraud deterrent and vehicle for detection, but it has to start from the top.

DYNAMIC RISK ASSESSMENTS:

People are dynamic, so your risk assessments must keep pace. With roles and responsibilities identified, use your team to pinpoint which inherent risks exist, and then prioritize them based on their impact, likelihood and speed at which they occur. Finally, use those priority rankings to map the risks to the best preventive and detective controls.

How does your nonprofit organization approach its fraud risk management?

See the related anti-fraud governance checklist and tips to help establish segregation of duties to decrease fraud risk.

-Article Adapted from the Nonprofit Standard Blog.

To assess your organization’s anti-fraud governance practices, ask the following questions:

Does the organization have a clearly stated code of conduct that explicitly prohibits fraud and other unethical behavior?

Does senior management openly discuss the importance of ethics and reporting suspected acts of fraud and other ethical breaches with the staff?

Does senior management recognize the importance of setting an example for all staff by consistently abiding by the organization’s code of conduct?

Does the organization have a robust and readily available hotline/reporting system for employees to communicate suspected fraud?

Does the organization have and consistently follow formal procedures for following up on and investigating allegations of fraud, noncompliance and other ethics breaches?

Does the organization provide fraud awareness training (online or live) that all employees are required to participate in periodically (preferably annually)?

Are management and the board aware of pressures associated with the achievement of the organization’s objectives in the assignment of responsibilities and evaluation of performance?

Are employees provided with a confidential means of discussing issues they are facing, such as work-related or personal pressures (for example, an Employee Assistance Program (EAP)?

Does the organization perform periodic fraud and compliance risk assessments?

Is the board of directors, or a committee of the board, formally charged with oversight of management’s fraud risk management activities?

Does the board (or audit committee) receive periodic updates regarding the nature of communications received by the hotline/reporting system and how these communications were resolved/investigated?

Does the board (or audit committee) have formal authority to investigate allegations of fraud, including the ability to bring in outside investigators if deemed necessary?

Does the board (or audit committee) hold discussions with the external auditors regarding the potential for management to override internal controls, and what the auditors do in response to this risk?

When violations of the code of conduct are identified, is disciplinary action consistently enforced?

Are fraud and compliance risks included as part of the board’s discussions of new programs or other significant strategic changes under consideration?

Anti-Fraud Governance Checklist

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TO PROPERLY

SEPARATE DUTIES,

THINK LIKE A THIEF

“We don’t have enough people to properly segregate duties” is something we hear from smaller organizations, and even some large ones. Proper separation of duties can certainly be a challenge. One way to simplify this challenge is by thinking like a thief. By that, we mean that organizations should consider that in order for crooks to perpetrate fraud, they need to be able to commit and conceal their crimes. If organizations can segregate the duties necessary to conceal the fraud from the duties necessary to commit the fraud, odds are that the person will not even attempt the scheme.

Sometimes, this means simply segregating a single step from the others. For example, many disbursement schemes in which perpetrators write checks to themselves or to personal vendors would easily be detected by having a separate person (e.g., a board member in the case of a small organization) reviewing the cancelled checks. Arranging for access to view cleared checks on the bank’s website or receiving the bank statement directly from the bank creates a significant obstacle for a potential fraudster to overcome, and all that has been done is to segregate the critical concealment step necessary for the successful perpetration of the fraud.

Continue this process by thinking through each of the significant fraud schemes that your organization is exposed to and analyzing the most important duties necessary to conceal each scheme. Separate those duties so that a different person executes those steps.

Finally, if possible, separate the duties necessary to perpetrate the scheme. This often requires additional staff or volunteers, but it provides even stronger internal controls.

POST YOUR OPEN BOARD POSITIONS ON LINKEDIN-IT WORKS! Source: BoardSource

Wary of recruiting board members through LinkedIn? Chis Carlton, chair of the board of development committee at the American Red Cross of Silicon Valley (ARCSV), shares her positive experience with the service.

Why did you post your open board position on LinkedIn? One of our board members, a social media strategist with LinkedIn, introduced us to the concept as it was being introduced and as our executive director and board development committee was looking for alternatives to augment our traditional board recruiting process. We had tapped out the resources we knew best — our current board members — and were having trouble identifying candidates and cold calling. Drum roll: Enter LinkedIn board member postings!

What positions were you recruiting for and how did go about writing the position description? Every effective search starts with identifying and writing a comprehensive job description. It allows you to identify the key attributes and talents needed to fill a position and gives the applicant insight into the position, requirements and job responsibilities. In preparing to run the posting, we found our board position description wasn’t job posting-ready.

But by working through the LinkedIn board posting form, we were able to clarify and be more specific in expressing what qualities and experience were necessary to be an effective ARCSV board member.

What skillsets were missing from your board? What role were you looking to fill? We were looking for a board member who is passionate about the mission of the Red Cross, and who is willing to be an active and involved board member serving on one of three committees, and

who would have the skills to be an influence leader for the Red Cross in communication or message and raising money.

What kinds of professionals applied? A diverse and very broad section of the community interested in the Red Cross and preparedness applied for the position. While many of the applicants did not meet board member requirements or did not live in Silicon Valley, they were still interesting as we could introduce them to other volunteer opportunities within the Red Cross. All applicants had relevant work and life experiences to apply to the work we do at the American Red Cross. So in a sense, you might say, rather than pre-qualifying a person’s interest by cold calling, board member postings did it for us by surfacing the opportunity, and those who were interested self-selected. It gave us a rich and diverse cross-section of talent ranging from potential interns to community volunteers to board candidate. Also particularly appealing, the applicants represented our diverse community and not just the current board demographic.

How did you select your final candidate form the pool? Most candidates were telephone-screened. Those who best fit the job description were interviewed by two members of the board development committee and, if referred, were interviewed by the executive director and board chair.

Has the candidate since joined the board? Yes, we were able to find three candidates actually with a few others pending, and those three have joined the board.

How would you describe the new board members? All three have been amazing, and none of them would have been identified through our more traditional recruitment process. All brought a wealth of experience, contacts, and passion to the board. All were corporate executives in a broad segment of industries from start-ups to Fortune 100s to consulting firms.

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Each one is strong in strategic planning, fiscal accountability, and social engagement.

What have they contributed to the board so far? One was a newcomer to Silicon Valley, and she has jumped in, contributing tremendously to our local chapter and also reaching out and adding strategic planning expertise to the broader region. Another is working to bring our social media reach to the 21st century, and the third is passionate about ensuring preparedness is a way of life in Silicon Valley. All jumped in to do the work that was needed, whether it be providing expertise in solving a problem, finding resources, or providing resources.

*Note: BoardSource Members are ableto post their open board positions on LinkedIn for free.*

Resources: BoardSource Board Recruitment Center, BoardSource © 2014.

LINKEDIN BOARD CONNECT: HELPING NONPROFITS FIND BOARD MEMBERS ON LINKEDIN. By: Meg Garlinghouse

At LinkedIn, we believe connecting the right talent with the right opportunity has the potential to change the world. In many ways, this is at the heart of what we do as a business. Since the beginning, it has been part of our culture to identify ways we can leverage what we do as a business and apply it to the social sector. Today, we are proud to announce LinkedIn Board Connect, a program that helps nonprofit leaders find high quality professionals to join their boards.

Nonprofit Landscape in the United States Over the last two decades, the nonprofit marketplace has exploded. There are nearly 1.6 million nonprofits in the U.S. with nearly two million board seats that need to be filled annually. The good news is that professionals want to join these boards. According to the Taproot Foundation, an estimated 87% of human resources professionals and 92% of marketing professionals are interested in board service but far fewer actually serve on boards.

With the launch of LinkedIn Board Connect, we are giving nonprofit leaders the tools to help them leverage their own networks and their board members’ networks to find the right skilled professionals to join their boards. The Board Connect program includes free access to Talent Finder (one of our premium accounts focused on finding top candidates on LinkedIn), access to an exclusive educational webcast and an invitation to join the Board Connect Group on LinkedIn. To participate, you must be a registered U.S. nonprofit. We are launching in limited release to give us a chance to learn from our initial participants.

To learn more and sign up for the program, please visit our brand new LinkedIn for Nonprofits resource page.

Leading up to the launch of Board Connect, we identified several nonprofit organizations in key verticals - social entrepreneurs and education leadership - and invited them to test drive the program and partner with us for launch. We believe these verticals are well positioned to leverage Board Connect successfully and we’re honored to have them join us as launch partners: Teach for America, Draper Richards Kaplan Foundation, New Schools Venture Fund and Charter Board Partners.

It is our hope that Board Connect will enable nonprofit leaders to find professionals with the right skills, experience and social capital to help them be successful.

Resource: https://blog.linkedin.com/2012/09/17/ board-connect

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