This document summarizes a presentation about financial accountability and risk management for nonprofits. The presentation covers compliance with government regulations, accountability through financial policies and oversight, identifying and managing risks, and crisis management strategies. It provides tips and checklists for preventing fraud, responding to financial crises, and maintaining public trust through transparency and ethical practices.

1. Fraud, Finance and
Freaking Out!
Risk and Crisis Management
For Nonprofits
Presenter
Miriam Robeson, Attorney
September 18, 2012

2. Why Are We Here?
Information Level –Intermediate
Assumes familiarity with nonprofit finance

3. Why Are We Here – Part 2
The Horror Stories and Bad Press - 2012

4. Why We are Here – Part 3
The IRS

5. Financial Accountability for
Nonprofits
 Compliance
 Accountability
 Best Practices
 Risk Management
 Crisis Management

6.  Government and other
technical requirements
Compliance

7. Compliance - State

8. Compliance - Federal
Failure to file – automatic revocation of §501(c)(3)
status

9. Updated slide
Compliance – IRS
Is your nonprofit “on the list?”
 IRS Publication 78– no longer published
 Search-able database:
http://www.irs.gov/Charities-&-Non-
Profits/Exempt-Organizations-Select-Check
 Search: IRS select check
 NOTE - Incorporation as a State (Indiana)
nonprofit does not equal IRS §501(c)(3) status

10. Compliance - Employment

11. Compliance - UBIT

12.  Requirements to protect the
financial integrity of the
nonprofit
Accountability

13. Accountability

14. What is Financial Accountability?
The Board is Responsible for:

15. Handout – 10 Tips for Keeping an Eye on Finances
Financial Oversight
Watch the money - Watch the people

16. Handout – 10 Financial Priorities for Nonprofit Boards
Accountability - Financial
 Financial Policies
 Financial Controls
 Monitor appropriate use of nonprofit
funds
 Audit - review

17. Handout – Nonprofit Financial Control Policy
Accountability -
Financial Governance Policies
 Policies for –
 Handling Money
 Recording Money
 Reporting Money

18. Handout – Document Destruction Policy
Accountability - Financial Controls

19. Handout – Conflict of Interest Policy
Accountability - Governance

20. Accountability - Conflicts of Interest

21. Accountability - Personal Benefit

22. Abuse of Nonprofit Status
 Improper Conduct
 Executive Compensation
 “Private Inurement”
 Excessive compensation
 Unreasonable Rental Agreements
 Unreasonable lending agreements
 Unreasonable sales transaction

23. Consequences of Abuse of Status
 IRS Consequences – $$
 Fines to Nonprofit
 Fines to Board of Directors
 Fines to Staff
 PERSONAL LIABILITY FOR ALL!
 IRS Consequences – Revocation of
Nonprofit Status

24. Accountability - Ethics

25. Nonprofit Ethical Issues - Examples
 Improper donor acknowledgements
 Donations of time are not tax-deductible
 Donor “influence-buying”
 Improper arrangements with donors
 Failing to include both spouses in joint gift paperwork
 Staff/ED/Board/Volunteer accepting gifts from
donors
 Failing to take responsibility (“Not My Fault”)

26. Handout – Whistleblower Policy
More Examples - Ethics

27. Transparency – Credibility to Public
Regularly provide information to the Public

29.  Steps to Identify and manage
nonprofit financial risk
Risk
Management

30. Risk Management for
Nonprofits
 Best Practices to Prevent Financial
Crisis
 Identify Risk
 Ranks Risk
 Identify Policies to manage risk
 Implement protections
 Implement procedures in event of crisis

31. Risk Management – D&O Insurance
Directors & Officers Insurance Protects - Board and Key Staff

32. Handout – Risk Management Policy
Risk Management Plan
Types of Risk to Manage

33. Risk Management - People
 Poor economy has resulted in an increase in
criminal conduct against nonprofits
 Embezzlement by employees
 Embezzlement by officers
 Fraud from “outsiders”
 Phrase of the Day – “Trust But Verify”

34. Issues of Fraud and the Nonprofit Sector

35. Fraud in the Nonprofit Sector is on the Rise!
2012 Global Fraud Study, Association of Certified Fraud Examiners

36. How is Fraud Detected?
2012 Global Fraud Study, Association of Certified Fraud Examiners

37. How Long Does it Take to Discover Fraud?
2012 Global Fraud Study, Association of Certified Fraud Examiners

38. Behavior Red
Flags

39. Handout -- Asset Misappropriations
What are the most common types of fraud?
2012 Global Fraud Study, Association of Certified Fraud Examiners

40. Who Commits Fraud? How Much?
2012 Global Fraud Study, Association of Certified Fraud Examiners

41. How is Fraud Punished?
 Termination of employment = 72%
 No punishment = 7%
 Quit/disappeared = 8%
 Referral to law enforcement = 65%
 Prosecutor declines to prosecute =25%
(Note – numbers total greater than 100% because more
than one action is taken)
“An Investigation of Fraud in Nonprofit Organizations: Occurrences and Deterrents,”
Greenlee, Fischer, Gordon and Keating, 2006, Hauser Center for Nonprofit Organizations

42. What is the likelihood of recovering funds? (1)
 Nothing recovered = 48%
 Complete recovery = 16%
 Partial recovery = 36%
WHO IS MORE LIKELY TO BE
VICTIMIZED? (2)
 Small organizations are much more likely to be a victim of
occupational fraud
 Lack of anti-fraud controls in smaller organizations
contributes to vulnerability
1. “An Investigation of Fraud in Nonprofit Organizations: Occurrences and Deterrents,”
Greenlee, Fischer, Gordon and Keating, 2006, Hauser Center for Nonprofit Organizations
2. 2010 Global Fraud Study, Association of Certified Fraud Examiners

43. Who Commits Fraud? Handout – Fraud Prevention Checklist
Handout – Sample Board Anti-Fraud Policy
 High-level fraudsters (Officers/Directors) cause greatest
damage – more than 3x more costly, and take longer to
detect.
 More than 85% have never been previously charged or
convicted.
 Behavior warning signs: Living beyond means and
DO ANTI-FRAUD difficulty
experiencing financial MEASURES HELP
PREVENT FRAUD?
 YES – The 2010 Global Fraud Study found that organizations
that had common controls in place had
 Significantly fewer losses (in # and $)
 Shorter time-to-detection
2012 Global Fraud Study, Association of Certified Fraud Examiners

44. Handouts – 10 Ways to Catch Fraud and Mistakes from
Outside
Handout – 15 Ways to Minimize Employee Fraud
Primary Control Weaknesses for Victim Orgs.

45. Handout – Someone Stole the Cashbox!
Nonprofits and Fraud Handout – Preventing and Responding to Fraud
What to do when it happens to you!

46. PR for Nonprofits Handout – Public Relations During Nonprofit Crisis
Public Relations During Fraud Crisis

47. Preventing Fraud

48. Crisis Management - The Good News
 Nonprofits showed growth in contributions in 2011 compared with 2010
Source: Guidestar 2011 Nonprofit Fundraising Survey

49. Crisis Management 101
Surviving Financial Downturn
 Step 1 – Review the Organization
 How well do you meet your budget
(typical)?
 What shortfall do you anticipate?
 How long can you survive at reduced
budget levels?
 How are you affected by each funding
source?

50. Crisis Management 101
Surviving Financial Downturn
 Step 2 – Make a Plan
 Risk Management Plan
 What can you reduce and maintain current
levels of service?
 What can you reduce and maintain minimum
service?
 Where can you increase funding
 Lapsed donors, new donors, alternate funding sources

51. Crisis Management 101
Surviving Financial Downturn
 Step 3 – Creative Options
 New Fund Raising Opportunities
 Social media, networking, micro-fundraising
 Collaborations with similar or complementary
nonprofits
 Spin-off/Re-Master current activities

52. Crisis Management 101
Surviving Financial Downturn
 Step 4 – Acute Crisis Management
 Reduction in programs
 Prioritize – what MUST you retain?
 Reduce scope/ Increase fees
 Reduction in Staff
 Reduction in Staff ≠ previous service levels
 Reduction in Staff = do it right
 What is your “limit”?
 Minimum financial - resource - program - mission
 PR in times of Crisis – Preserving public image

53. Financial Accountability
for Nonprofits

54. Any Questions?
Thank you for your attention!
Miriam Robeson, Attorney
Today’s materials are available on
Miriam’s Website:
http://blog.lawlatte.com/index.php/
2012-workshops/