By Nathan Partenza
Collusion is involved in 30% of the largest fraud cases in not-for-profit organisations - with a board member implicated in 31% of those cases - according to a major Australian and New Zealand report.
The BDO Not-For-Profit Fraud Survey 2014, released yesterday, examined risk management for the first time and found a strong link between the strength of an organisation's risk management framework and its susceptibility to fraud.
The survey found 55% of respondents had a risk management framework - increasing to two-thirds of organisations with a turnover of more than $1 million.
Organisations with a risk management framework had a lower average fraud of $5571, the survey found. Those who did not suffered an average fraud of $57,338.
Fraud resulting in losses of $3.2 million - with an average reported fraud of $22,904 - was recorded in the 2014 survey.
"For any organisation, not-for-profit or otherwise, these are significant sums," BDO risk advisory lead partner Marita Corbett said.
"With the average fraud taking more than a year to complete (14 months), it is absolutely crucial that not-for-profits implement effective policies and procedures to help detect fraud internally."
The survey found that just 18% of respondents had implemented a whistleblower policy despite tip-offs being identified as one of the most effective ways to discover fraud (35%).
"Mechanisms such as an accessible whistleblower policy will not only improve the robustness of a not-for-profit's fraud prevention and detection systems, they are also cost effective," Ms Corbett said.
BDO forensic service lead partner David Ferrier said while there had been a decline in the number of fraud cases reported since the last BDO survey, organisations were still failing to implement fraud prevention policies.
"What is concerning … is that 70% of those organisations who experienced fraud over the past two years had suffered fraud in the past," he said.
"This would suggest that some organisations aren't learning from past experiences."
The survey profiled the 'typical fraudster' as a paid employee who was aged over 50 and worked in a non-accounting role. Just 16% of frauds were committed by volunteers.
Other characteristics of the largest frauds reported included:
The survey also found 28% of not-for-profits believed fraud was a direct threat to their organisation, but 90% viewed it as a problem for the sector.
BDO not-for-profit lead partner Chris Skelton said that while the number of respondents who recognised fraud as a problem for their own organisation had significantly increased (by 20% on the previous 2012 survey), greater awareness was still needed.
"Whilst the existence of fraud-prevention measures is given as a reason why 72% of respondents still don't see fraud as a direct threat to their organisation, the effectiveness of these measures could explain the level of fraud that exists in the sector," he said.
Mr Skelton said suffering fraud could jeopardise future funding for not-for-profits. Some 54% of respondents did not report fraud to police to protect their reputation and future funding opportunities, the survey found.
External audits (83%), ethical organisational culture (81%) and strong internal controls (77%) were considered primary factors in reducing fraud risk.
The 2014 survey - BDO's fifth - had 436 respondents.
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