One Voice Illinois

Preventing Theft, Fraud, and Embezzlement

From National PTA

It is hard to acknowledge that theft, fraud and embezzlement are pervasive in today’s
society. In many cases, the person who
commits these acts is someone you know, like and trust. Convincing a nonprofit to prosecute is often difficult. A nonprofit’s duty to its members, the community, and its donors are significant and this should have strong consideration when determining whether to prosecute or not. Managers of nonprofit organizations must constantly be on the lookout for fraud. Fraud costs U.S. organizations more than $400 billion annually. The average organization loses approximately 6% of its total annual revenue to these abuses. And these abuses are perpetrated at all levels of the organization.

Internal Controls

Every organization should have a strong system of internal controls. Internal controls are not only for large organizations; there are steps small organizations can take to protect their assets as well. They may not have enough volunteers or employees to maintain strict delineation of duties but internal controls are still possible. Without good internal controls it could take months to become aware of a problem. View our Fraud Prevention Checklist. Also be sure to access the Preventing Theft in Your PTA e-learning course. This course will teach you how to detect theft in your unit and what to do if you suspect it is happening.

Internal controls are a process designed to provide reasonable assurance regarding the reliability of financial reporting, the effectiveness and efficiency of your operations, and compliance with applicable laws and regulations. Implementing proper internal controls provide assurance that:

Good internal controls will take away the opportunity needed by desperate people to commit a crime. What will cause a normally good person to reach this point? Gambling debts, divorce, illness, drug problems, peer pressure, and work lay-offs are some of the reasons that are given when people are questioned about these abuses. It may be hard to take appropriate action when you have compassion for the person committing the fraud, but that should not be part of the consideration.

Internal controls include policies such as:

PTA-Specific Warning Signs

The following is a list of PTA-specific warning signs that may indicate that theft, fraud or embezzlement is taking place:

The Cost of Not Prosecuting Fraud

There are many costs as a result of not prosecuting fraud:

Fraud can have a significant impact on your association. It can lead to:

Investigate all suspected fraud and decide if sufficient probable cause exists to prosecute. You may want to get an attorney involved from the beginning to make certain that evidence of possible fraud is properly preserved. They can advise the association on the likelihood of success in civil court, and protect the organization from issues related to improper actions or civil rights violations against the suspect.

Do not be afraid to talk about fraud. Make it well known that theft will not be tolerated and that prosecution may result. Promote safeguards to reduce incidents of fraud and encourage people to come forward if they suspect irregularities.

Suspected Fraud Action Step-by-Step

When you suspect fraud, be sure to consider the following:

Be sure your PTA has a written policy with procedures describing how future incidences will be handled.

Check the insurance policy before you have a problem to see if it requires prosecution in order to recover a loss. You should also check the policy to see if it will cover losses if you do not have written controls in place or what happens if the controls are not followed. Many times this is grounds for denying a claim. You may want to check your state law to see if there are provisions that you may want to incorporate in your policy.

If you have evidence that fraud has occurred, take the following steps: