Losses due to fraudulent activities are particularly troublesome in the nonprofit sector because they directly reduce resources available to address tax-exempt purposes. The ensuing bad publicity also may reduce contributions and grants in subsequent periods. This article uses data provided by Certified Fraud Examiners to report on the types of fraud they identified in nonprofit organizations and the characteristics of both the victims and the perpetrators of the fraudulent activities. Based on the analysis of the data, the authors suggest ways that fraud losses can be prevented or mitigated. In particular, governing boards are urged to consider important controls in addition to the annual financial statement audit.
Albrecht, W.S., Howe, K.R., & Rommey, M.B. (1984). Deterring fraud: The internal auditor's perspective . Altamonte Springs, FL: The Institute of Internal Auditors Research Foundation.
2.
Ambrose, E. (2005, March 19). FTC wants AmeriDebt founder to refund $172 million. Baltimore Sun. Retrieved June 28, 2006, from http://web.lexis-nexis.com
3.
American Institute of Certified Public Accountants. (AICPA). (2002a). Management antifraud programs and controls. Exhibit in Statement of auditing standards no. 99: Consideration of fraud in a financial statement audit. New York: Author. Retrieved June 22, 2006, from http://www.aicpa.org/antifraud/management/20.htm
4.
American Institute of Certified Public Accountants. (AICPA). (2002b). Statement of auditing standards no. 99: Consideration of fraud in a financial statement audit. New York: Author.
5.
As charitable cheating rises, so does cost to taxpayers. (2005 , April 11). USA Today, p. 12a. Retrieved June 28, 2006, from the Newspaper Source database, http://search.epnet.com/longin.aspx?direct=true&db=tfth&an=JOE294395306005
6.
Association of Certified Fraud Examiners. (ACFE). (1997). 1996 report to the nation on occupational fraud and abuse. Austin, TX: Author. Retrieved June 28, 2006, from http://www.acfe.com/ fraud/report.asp
7.
Association of Certified Fraud Examiners. (ACFE). (2003). 2002 report to the nation on occupational fraud and abuse. Austin, TX: Author. Retrieved June 28, 2006, from http://www.acfe.com/fraud/report.asp
8.
Association of Certified Fraud Examiners. (ACFE). (2004). ACFE fraud prevention check-up. Austin, TX: Author. Retrieved June 29, 2006, from http://www.acfe.com/fraud/check.asp
9.
Association of Certified Fraud Examiners. (ACFE). (2005). 2004 report to the nation, occupational fraud and abuse. Austin, TX: Author. Retrieved June 28, 2006, from http://www.acfe.com/fraud/report.asp
10.
Aviv, D. (2005, September 28). Testimony to the U.S. Senate Finance Committee, hearing on Hurricane Katrina: Community rebuilding needs and e fectiveness of past proposals. Retrieved June 13, 2006, from http://www.senate.gov/~finance/hearings/testimony/2005test/092805datest.pdf
11.
Ayers, K. (2006, January 2). PTA thefts. Dallas Morning News, Front Page and 5A.
12.
Beasley, M. (1996). An empirical analysis of the relations between the board of director composition and financial statement fraud. The Accounting Review, 71(4), 443-465.
13.
Birchard, B. (2005). Nonprofits by the numbers. CFO , 1(10), 50-55.
14.
California: Jail term for charity fraud. (2004, August 24). The New York Times, p. A:13.
15.
Carcello, J., & Nagy, A. (2004). Audit firm tenure and fraudulent financial reporting . Auditing,23(2), 5.
16.
Crenshaw, A. (2005, April 5). Tax abuse rampant in nonprofits, IRS says. The Washington Post, p. E1.
17.
Cullinan, C.P., Hui, D., & Wright, G.B. (2006). A test of the loan prohibition of the Sarbanes-Oxley Act: Are firms that grant loans to executives more likely to misstate their financial results? Journal of Accounting andPublic Policy , 25(4), 485-497.
18.
Douglas, S., & Mills, K. (2000, August 16). Nonprofit fraud: What are the key indicators? Canadian Fundraiser. Retrieved June 26, 2006, from http://www.charityvillage.com/cv/research/rlegal16.html
19.
Dunn, P. (2004). The impact of insider poser on fraudulent financial reporting. Journal of Management, 30(3), 397-412.
20.
Farber, D. (2004). Restoring trust after fraud: Does corporate governance matter?The Accounting Review, 79(2), 539-561.
21.
Floch, J.L. (2004, August). Audits, standards, and integrity in nonprofit organizations. Practical Accountant [Suppl.], 37, 4-6.
22.
Fremont-Smith, M.R. (2004a). Governing nonprofit organizations: Federal and state law and regulation. Cambridge, MA: Belknap.
23.
Fremont-Smith, M.R. (2004b). Pillaging of charitable assets: Embezzlement and fraud. Exempt Organization Tax Review, 46(33), 333-346.
24.
Fremont-Smith, M.R., & Kosaras, A. (2003, October). Wrongdoing by officers and directors of charities: A survey of press reports 1995-2002. Exempt Organization Tax Review, 42, 25. Retrieved from http://www.lexisnexis.com/universe
25.
Gathright, A. (2004, December 11). Ex-lawman convicted in big charity scam. The San Francisco Chronicle, p. B4. Retrieved June 28, 2006, from http://search.epnet.com/login.aspx?direct=true&db=nfh&an=9YQ3378021
26.
Gibelman, M., & Gelman, S. (2001). Very public scandals: Nongovernmental organizations in trouble. Voluntas, 12(1), 49-66.
27.
Gibelman, M., & Gelman, S. (2002). Should we have faith in faith-based social services? Rhetoric versus realistic expectations. Nonprofit Management & Leadership, 13(1), 49-65.
28.
Gordon, T., Greenlee, J., & Nitterhouse, D. (1999). Tax-exempt organization financial data: Availability and limitations. Accounting Horizons , 13(2), 113-128.
29.
Greenlee, J. (2000, Spring). Accountability in the information age . New Directions for Philanthropic Fundraising, 27, 33-50.
30.
Healy, B. (2004, June 15). Two former officers of Dallas charity ordered to pay $14 million in damages. The Boston Globe. Retrieved June 26, 2006, from http://search.epnet.com/login.aspx?direct=true&db=nfh&an=2W61864917082
31.
Independent Sector. (2002). The new nonprofit almanac & desk reference. Washington, DC: Author. Retrieved June 26, 2006 , from http://www.independentsector.org/pdfs/inbrief.pdf
32.
Independent Sector. (2005). Panel on the nonprofit sector strengthening transparency, governance, accountability of charitable organizations. Washington, DC: Author. Retrieved June 26, 2006, from http://www.nonprofitpanel.org/final/Panel_Final_Report.pdf
33.
Joslyn, H. (2003, March 20). Charities' glass ceiling. Chronicle of Philanthropy. Retrieved June 23, 2006, from http://philanthropy.com/free/articles/v15/i11/11004701.htm
34.
Keating, E., & Frumkin, P. (2003). Reengineering nonprofit financial accountability: Toward a more reliable foundation for regulation. Public Administration Review, 63(1), 3-15.
35.
Kpmg. (2003). Fraud survey 2003 . Retrieved June 22, 2006, from http://www.kpmg.com/aci/docs/Fraud%20Survey_040855_R5.pdf
36.
Krishnan, R., Yetman, M.H., & Yetman, R.J. (2006). Expense misreporting in nonprofit organizations . The Accounting Review, 81(2), 399-420.
37.
McDowell, S.R. (2004, July). Should nonprofit organizations adopt the rules of Sarbanes-Oxley?Taxation of Exempts, 16, 8-15.
38.
Midkiff, K.A. (2004). Catch the warning signs of fraud in NPOs. Journal of Accountancy, 197(1), 28.
39.
Miriam-Webster, Inc. (1996). Dictionary of law. Retrieved from http://dictionary.lp.findlaw.com
40.
Owens, J.R., Iii. (2003, July/August). Nonprofits without audit committees risk financial disaster. Directorship , 29(7), 50.
41.
Rezaee, Z. (2005). Causes, consequences, and deterrence of financial statement fraud. Critical Perspectives on Accounting, 16(3), 277-298.
42.
Sharma, V. (2004). Board of director characteristics, institutional ownership, and fraud: Evidence from Australia. Auditing,23(2), 105-117.
43.
Wells, J.T. (2005). Principles of fraud examination. New York: John Wiley.
44.
Wells, R. (2005, April 6). Senate hearing probes tax abuse by charity groups. Wall Street Journal, 245(67), D2.
