The Unholy Prospect of Occupational Fraud in Churches, Nonprofits and Other Community Organizations

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Anyone and any organization can become a victim of fraud, and, unfortunately, occupational fraud can hit nonprofits and other community organizations that may be near and dear to our hearts. According to Rollie Dimos, CFE, CIA, Internal Audit Director of the General Counsel of the Assemblies, fraud at these organizations is so common because there aren’t many prevention controls in place. He outlined the threat of fraud and what can be done to stop it in his session “Increasing Integrity by Reducing Fraud at Nonprofits and Community Organizations” at the 33rd Annual ACFE Global Fraud Conference.

Because of his background, most of Dimos’s findings revolved around churches. Thankfully, fraud isn’t creating financial losses as sizable at churches as at other organizations. According to a survey of churches that were victims of fraud, 70% saw losses of less than $100,000. 7 percent reported a loss of more than $250,000. While that is a little bit of positive news, it’s still not a stellar headline. The fact of the matter is these organizations, even some smaller congregations, are still seeing losses of much-needed money.

The Fraud Triangle, which is used to help determine why people commit fraud, consists of three parts: opportunity, pressure and rationalization. Dimos says two aspects of the Fraud Triangle, pressure and rationalization, are beyond an organization’s control, but opportunity is absolutely something that can be controlled. He quoted the ACFE’s 2020 Report to the Nations which said nonprofit organizations are much more vulnerable to fraud because of these three top weaknesses:

  • Lack of internal controls

  • Lack of management review

  • Override of existing internal controls

In regard to the Fraud Triangle, Dimos says he knows of situations where even church leaders have encountered two parts of the Fraud Triangle: opportunity and pressure. He says the pressure came in the form of financial pressure, and the church leaders who are feeling that pressure have access to their organization’s finances.

Quoting the 2021 Church Law and Tax Fraud Survey, Dimos says churches can take small steps (create controls) to reduce the risk of fraud, theft and other financial conduct against the organizations:

  • Regularly generate and review finance statements.

  • Have at least two unrelated people working together.

  • Segregate duties.

  • Safely store and secure collections.

  • Require someone with signatory authority to review.

  • Apply accounting procedures for noncash assets.

Meanwhile, Dimos’s practical ways to protect nonprofit organizations encourage leaders and staff to:

  • Embrace accountability and transparency (“tone at the top” for accountability, so pastors should also be held accountable)

  • Document policies and procedures (record retention, documenting policies). He says too many formal practices are not formalized in writing

  • Minimize exceptions: Keep presenting this concept to the board.

  • Segregate key duties: No one person should be in control of receiving, recording, spending and reconciling.

Dimos reminded attendees that there is not a singular correct way to accomplish everything listed above. He recommends organization leaders do what is right for their organization.

Dimos recognizes our ever-changing, technologically advanced world. When it comes to digital giving, which has become even more popular with the pandemic, he says two or more people should be involved in the initial setup of a digital giving program. He goes on to say authorized changes to routing account info should be limited. He says similar cautions and accountability should be taken when using online banking, or if the nonprofit uses cryptocurrency.

Believe it or not, Dimos believes culture and morale at a workplace play a big role in fraud prevention. He recommends organization leaders create a better work environment to reduce the risk of fraud in an organization. He says leaders should show gratitude, provide meaning to work and offer clear opportunities for growth. He also says leaders should create a culture of accountability, transparency and integrity.