1. Fraud Awareness Workshop
Not-for-Profit
Fraud Awareness Workshop
April 5, 2016

2. We are Brown, Edwards & Company, L. L. P
We are Brown, Edwards & Company, L.L.P., a regional accounting and consulting firm, serving our clients’ needs since Our mission is to provide business management and tax saving solutions as a necessary extension to traditional accounting and tax compliance services.

3. What is this?
BP – April 20, $90B in S/H wealth lost in a couple of days.
Stock had almost fully recovered by If you look at 2015, you will notice that the stock has tanked again, but that has a lot more to do with oil prices than the oil spill

4. How about this? Untied Way National Capital Area
$95M in 2002 to average of $33M over the next 12 years. If you’re counting, that’s a total of $744M that didn’t go to feed the hungry, house the homeless, etc.

5. Agenda Fraud impacts NFPs far differently than for profit businesses
Why the impact is so much greater
Why NFPs are more susceptible
Behaviors to watch out for
Prevention: What can you do?
Free takeaways
Note that this presentation will primarily focus on auditing standards.

6. Why Is the Impact so Much Greater?
Public Trust
Publicity of frauds can lead to significant declines in revenue
Financial Position
Many NFPs are in a fragile financial position to begin with. A small loss of cash can have a big impact.
Public Trust – In a for profit, as long as I’m still getting value in exchange for my $, I have a reason to stay. With gift to charity, the only thing I receive are intangible “feel goods.” These go away pretty quickly when fraud comes to light

7. Why are NFPs more susceptible?
Trust Factor
Fraud Triangle
Opportunity
Incentive
Rationalization
Financial Position
Many NFPs are already short staffed, making sound internal controls hard to implement

8. Behaviors to Watch For 1 – Unable to get financial data
Always look for:
Cash balance
Accounts payable report
Amounts outstanding on all credit lines, credit cards, etc.
Accounts receivable report
Traditional financial statements
2 – Bullying behavior
The largest scam of all time in the nonprofit world was The Foundation for New Era Philanthropy whose founder, John Bennett, created a Ponzi scheme in 1989 that brought in over $500 million before it was finally unmasked in 1995 by Albert Meyer, a Spring Arbor College accounting professor who asked this simple accounting question about the nonprofit's income statement and balance sheet. If New Era had all this cash in their account, why was there no income shown on the income statement?

9. Prevention: What can you do?
Tone at the top
Segregation of duties
In smaller organizations, this will mean involvement of board members
Whistleblower policy
Tone at the top – it sounds silly, but it works. Have all employees sign upon hire and annually thereafter a code of conduct
Whistleblower policy – studies have shown than many frauds were known by other employees. These employees don’t come forward for various reasons – fear of retribution, sympathy with fraudsters, etc. - have a fraud hotline

10. Free Takeaways
Couple of hot topics not related to anything else we’ve talked about
New Financial Reporting Rules for all NFPs
Beware of using donor advised funds to fulfill pledges
New Rules – No expected date yet. My guess would be 2018
Big deals: Combine PR and TR net assets - good
Liquidity measures – Not good
New required subtotals in income statement
Required Stmt of FE
CF Stmt will change
Other minor changes
Donor Advised Funds:
IRS rules prohibit a donor from fulfilling a legally enforceable pledge w/ a DAF payment
They view it as using a NFP to fulfill a personal obligation
Donor has to pay 125% of the gift to the IRS
CF has to pay 10% tax if it knew there was a pledge
Charity has no tax to pay, only penalty would be alienating donors

11. Questions, Comments, Complaints?
James R. Fries, CPA, MSA
(540)
Melissa C. Stanley, CPA
(540)