“Trust but verify”….. How nonprofits and other community agencies can protect their resources from theft and fraud.


Ronald Reagan’s famous admonition is as relevant to running a nonprofit as it was to guiding our international treaty commitments with the Soviet Union.

Critical to the success of any endeavor, especially those that rely almost completely on public support as do nonprofits, is establishing and maintaining public trust. Especially when it comes to responsibly and transparently managing contributions. Yet the sad fact and a largely unknown one is that embezzlement is a more common and bigger issue than we may think. In the for-profit sector, it’s estimated that 7 percent of gross revenue is lost to employee fraud (Association of Certified Fraud Examiners report) while according to a 2007 study by four university scholars of accounting — nonprofits lose 13 percent of the total they collect in donations each year to fraud (Chronicle of Philanthropy, Embezzlement Happens, 2011) – a frightening and mostly avoidable loss.

The Greater Green Valley Community Foundation created the Nonprofit Learning Institute (NPLI) to provide training on all aspects of creating programs and policies, including successfully managing finances and preventing fraud. The NPLI exists because most local nonprofits cannot afford quality professional training not only to improve performance but also on how to avoid the trust-damaging issues of embezzlement, fraud, and theft. Nonprofit executives and board members have a fiduciary duty to protect their nonprofits’ assets and preserve their ability to provide services. If nonprofit leaders don’t do enough, they have breached their duty and could be held liable.

Too often when fraud happens you hear explanations like these: “We had no idea,” “We needed a treasurer and had to take anyone who offered,” “The reports always seemed correct,” “We are a small organization,” “We are all friends,” “We can’t afford to pay for professional help.” The fact is there is a lot that even the smallest nonprofit can and must do.

Here are some good and simple steps to safeguard your nonprofit finances. If you have a one-person office, creating all the following controls may be impossible, but you should try to implement as many of them as possible:

  • Store checkbooks, savings passbooks, blank checks, financial records, and cash in a locked, secure place.
  • Regularly back up financial records that you keep on computers, and store a copy off-site in a safe location.
  • Assign to different people the separate functions of writing checks, signing checks, reconciling bank accounts and checking the canceled checks that return from the bank. If you can arrange for four different people to perform these tasks, that’s great. If not, maybe a board member can double-check canceled checks.
Look for accuracy and for anything that looks fishy, such as checks made out to vendors you don’t recognize, checks canceled by people or businesses other than those to whom they’re written, or canceled checks that are missing from bank statements. Embezzlement is rare but possible, and taking these steps is a way to detect it.
  • Require two signatures on checks or bank transfers over a certain amount. There is no standard amount for this practice: It depends on what qualifies as an unusually high transaction for your nonprofit. You can adopt this requirement as an internal policy and enforce it as a way of ensuring board oversight of large transactions.
Although your bank probably monitors large or unusual transactions and may contact your organization if it notices unusual activity on your account, these days few banks accept responsibility for enforcing a two-signature policy on customers’ checks.
  • Retain in organized files, subject to a document retention/destruction policy, all paperwork that backs up your banking documents. These documents may include personnel time sheets, box office or other records for tickets sold, receipts, and invoices. You may scan and retain them as electronic documents if you wish. If you do so, back up the files and carefully protecting passwords.
  • Keep an itemized list of any furniture or equipment you purchase or receive as donations (including computers), noting the date they were purchased or received and their value.

Most important, contact the Greater Green Valley Community Foundation and sign up for the trainings run by its NonProfit Learning Institute, or request one just for your agency. Knowledge and prevention are your best safeguards. Your clients will thank you and your community will trust and support you.

Bob Phillips
is the director of the NonProfit Learning Institute, a program of the Greater Green Valley Community Foundation. For more info on the NPLI and its training and service programs or to make a comment, contact Phillips via email at: rtp1844@gmail.com