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Preventing Fraud in Non-Profit Organizations: Part 1 - Tone at the Top


This blog post is contributed by Ryna Ferlatte,  CA·IFA, CPA, CFF, Practice Leader for MNP's Investigative & Forensic Services team in Toronto.

The impact of fraud on a non-profit organization can be devastating – the reputational damage caused by a single instance of fraud could cripple an organization by compromising its ability to attract new donor funds, and retain existing donor relationships.

Non-profit organizations have certain specific features which can make them susceptible to fraud. For instance, non-profit organizations must do more with less, sometimes at the expense of basic internal controls such as segregation of duties. Other organizations, especially those dealing with emergency relief, may be focused on getting funds to beneficiaries as quickly as possible and as a result may be more susceptible to fraud if normal processes and procedures are bypassed for the sake of expediency.

So how can non-profits protect themselves? In this blog series we will provide non-profit organizations with guidelines to assist with the implementation anti-fraud controls and programs and help safeguard their assets and reputation.

We often hear the term Tone at the Top when discussing control programs in organizations. It is perhaps the most important feature in a fraud prevention program, and yet its importance is often overlooked, with organizations drafting and circulating of policies and procedures to their staff without a clear message from top management on the importance of ethics to provide context for the policies.

Essentially, Tone at the Top is the communication of an organization’s expectations regarding ethical behavior by its leadership, through its words, actions and decisions.

In assessing the effectiveness of their “Tone at the Top”, organizations should ask themselves the following questions:

  • Is ethical behavior part of our mission and values?
  • Do we have clearly articulated policies to make our employees, volunteers, suppliers and partners aware of our ethical mandate?
  • Do we have a zero-tolerance approach to dealing with ethical lapses?
  • If a fraud occurred tomorrow, would we know what to do?

If you answered no to any of these questions, your fraud control environment may need some work. But before you get started, you need to understand the risk your organization faces. Part 2 will discuss the importance of fraud risk assessments as part of an effective anti-fraud program.

During the course of this series, we will examine each of these features as they apply to the non-profit environment. For more information on how MNP can help your NPO in preventing fraud, please contact Greg Draper, CGA, DIFA, CFE,  Investigative & Forensic Services Leader at Meyers Norris Penny LLP.

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