The risk of fraud in your organisation

Fraud is a problematic word, yet it is one of the more common financial crimes infecting organisations. Unfortunately, the NFP and charity sector is not immune. With audit season in full swing, fraud is a topic for management and boards. Auditors are mindful of ensuring that fraud and key personnel risk are taken seriously.

The NFP and charity sectors are the poster children for integrity and trust; the consequences of fraud can be devastating from a financial perspective and have a lasting impact on the organisation’s reputational value.

As an Account Manager for Accounting For Good, protecting our clients’ financial sustainability and compliance is close to my heart, and fraud is an area of genuine interest. In this article, I want to explore what constitutes fraud, how to identify key personnel risks, and how you can sharpen your organisation’s fraud risk management policy and procedures to mitigate your organisation’s exposure to fraud and help maintain your financial and reputational integrity.

Fraud can take many forms; however, it is defined as intentional deception for personal gain. This can manifest in different ways, such as misappropriating assets or funds, specifically theft, unauthorised transfers, or misusing the organisation’s property.

Another form of fraud is financial reporting fraud. This manifests itself as manipulating figures and falsifying documents.

During a well-conducted audit, the organisation’s attitude to fraud, including the existing systems, culture, and controls in place to identify and mitigate fraud, is examined. An auditor will ask targeted questions such as:

• Is there any reason to believe fraud may exist within the organisation?
• What fraud risks does your organisation face?
• How would you describe the organisation’s culture and attitude toward fraud risk?
• Have there been any known or suspected instances of fraud?
• What processes are in place to prevent, detect, and respond to fraud?

These types of questions are more than procedural; they’re designed to assess internal controls, whether policies are being followed, and whether your team has the awareness to recognise and respond to fraud indicators.

Fraud is more likely when three conditions are present. These are known as the fraud triangle.

• Opportunity: Gaps in the internal controls, poor or non-existent separation of duties, an overly trusting culture, or too much control and access in the hands of one individual.
• Incentive and/or pressure: When the organisation’s internal procedures work on performance bonuses and pressuring staff to meet targets. External factors on individuals: personal financial issues, addiction, medical issues, or the stress of maintaining an unrealistic lifestyle.
• Rationalisation: People may rationalise fraudulent behaviour with attitudes such as “I’ll pay it back,” “I’ve earned it,” or “they owe me this after all the work I’ve done.”

Most of us go through our lives not thinking about fraud or being exposed to it. While fraud is in the news, often relating to scams, it is one of those things that you think only happens to other people or organisations. Unfortunately, fraud is a common crime. While not all anomalies indicate fraud, when there are several warning signs, organisations’ leaders should act and scrutinise any potential fraud.

Potential red flags:

• Lifestyle: Luxury cars, expensive holidays, clothes, or jewellery that don’t match a known income level, and lavish spending.
• Transaction irregularities include single-person relationships with suppliers, unusual or frequent payments without proper sign-off, and unexplained or high-volume financial adjustments without supporting evidence.
• System access: Logging into systems outside business hours or while on leave, or data disappearing or being manipulated.
• Cultural: Staff who never take annual leave or are overly secretive about work. A lack of transparency and reluctance to share information. New hires bypassing standard recruitment checks.

In some NFPs, especially smaller ones, key personnel, executives, finance managers, or long-serving employees can operate with a high degree of autonomy. While trust is important, overreliance on a single person increases the risk of fraud going undetected.
Fraud cases often involve people who are well-liked, long-tenured, or otherwise deemed trustworthy. Personal circumstances can change, and even the best people may make poor decisions under pressure.
While it is not an exact science, and things may have reasonable and innocent explanations, these behaviours are often associated with fraudulent activity.

The organisation’s responsibility is to mitigate the risk of fraud. This goes beyond financial stability; it includes protecting the organisation’s reputation and having policies and procedures that help safeguard it from fraud.

What your organisation can do: Accounting For Good can assist you.

Implement internal controls and regularly test them.

• Segregate duties.
• Implement dual authorisation.
• Conduct regular reconciliation and random financial checks.

Design systems that work regardless of who manages the role.

• Ensure processes do not rely on individual integrity.
• Use checklists, logs, and audit trails.

Strengthen policies and ensure they are enforced.

• Define how exceptions are handled, e.g. “no receipt” expenses.
• Monitor compliance, not just policy existence.
• Close loopholes, e.g. one person using two logins to bypass dual authorisation.

Black hat thinking.

• Black Hat Thinking is an approach that focuses on identifying risk, potential problems, and logical flaws. Devised by Edward de Bono, he asks: If someone wanted to commit fraud, how would they do it? This helps expose potential vulnerabilities.

Talk to us. Don’t wait for audit season.

• We can help identify control weaknesses.
• Discuss emerging fraud trends.
• Ensure your financial compliance is up to date.

This article was created by Kathy Tung – Account Manager – Accounting For Good

At Accounting For Good, we work with NFP organisations with a turnover of $1M or more.

Contact us if your organisation needs expert financial guidance or you need professional advice on fraud protection and procedure development. Let us handle your accounting needs so you can focus on what matters most, serving your community and driving positive change.