Fraud update - how to reduce your risk
By James Gare
With talk of a possible double dip recession, it is likely that there will be a lot of desperate people around. Now more than ever, Trustees need to guard themselves against the risk of fraud. Ultimately the responsibility of protecting the finances lies with the Trustees and it is too easy to assume someone else in the organisation is taking responsibility for these increased risks.
Accountancy is awash with terminology which can intimidate those without financial training. Combined with the onerous financial requirements of the sector, it should come as no surprise then that many Trustees do not feel equipped to fully engage with the financial governance of their organisations. To make matters worse, smaller not for profit organisations can often find it difficult to recruit a Treasurer with the necessary skills. If this position is left unfilled, it can leave a major hole in the organisation’s governance – with the Board of Trustees having poor understanding of financial management and therefore unable to monitor the organisation’s finances.
It is very easy to think that your organisation will never be the victim of fraud, especially if your colleagues and employees have been in place for many years. I have investigated cases in which the individuals suspected had been involved with the organisations for many years and were well respected. As I worked through the issues, it became increasingly clear it could have been averted if the Board had possessed a higher level of financial understanding. Sadly every Board member I spoke to thought another individual was monitoring the situation but no one had their eye on the ball. Although cheques were signed in good faith, the Trustees charged with approving expenditure were not looking at the costs sceptically. Also the Board as a whole were not engaging with the information in the management accounts and questioning figures.
No one expects their organisation to be defrauded – until it is too late. So what should Trustees be doing to mitigate this risk?
- If the board lacks the requisite skills, then seek help. Even when financially competent individuals will not commit to becoming trustees, many are willing to help by providing pro-bono advice, support, or training.
- Simplifying internal financial reporting will allow everyone to understand the key issues and contribute to financial monitoring.
- Look at everything you do as if for the first time – ask questions. Never feel embarrassed to ask questions or think your question is stupid.
- Regularly sit down with Management and think about new risks. We have repeatedly seen clients move over to internet banking with no regard to how bank transfers should be approved. What is the point of requiring two Trustees to sign cheques, if the finance manager has carte blanche to make electronic transfers with no Trustee intervention? Are there other changes in your operations that could result in a potential fraud?
- Try listening to the advice of your auditor or other professional advisors. It is likely that they will represent many organisations in a similar position to yourself, and will be well versed in advising on the control environment.
Contact us
For further information and advice on protecting your organisation against fraud, contact James Gare.
