Fraud In Australian NFPs Down -Survey

An Australian survey on fraud in the Not for Profit sector has revealed that the incidence of fraud among organisations has fallen over the past two years and involves relatively small amounts of cash or inventory when compared with large public and private companies.

The 2010 survey, conducted biannually by national accounting and advisory firm BDO, revealed 15 per cent of respondents reported suffering from fraud in the past two years, compared with 16 per cent in the 2008 survey and 19 per cent in the 2006 survey.

However, the survey found that police are not usually informed.

The BDO Not-For-Profit Fraud Survey 2010 was co-authored by BDO partner Chris Skelton and Senior Manager Andrew Howard with Professor Peter Best from the University of Southern Queensland.

Key survey findings include:

•The number of respondents who see fraud as a problem in their organisation has fallen sharply to 14 per cent from 20 per cent in the 2008 survey
• The person committing fraud in NFPs was usually in his or her 30s or 40s and holding a paid non-accounting position. Volunteers were rarely involved in fraud (only 12 per cent of cases)
• The principal motives for the frauds were financial pressure, gambling and maintenance of lifestyle
• The reported large frauds were also low in value compared with other studies, with an average value of $26,132. In comparison, a 2008 study showed the average fraud among large public and private organisations was $291,515
• Most NFP frauds were detected within 10 months, thereby limiting their value Chris Skelton, BDO’s National Lead Partner, Not-For-Profit Sector, said most NFPs did not report fraud to police because they feared adverse publicity and loss of donations and agency funding.

Skelton says the survey shows Not for Profit organisations have not only increased their awareness of fraud risks but have benefited from improving their internal control environments, which is helping reduce fraud.

He says the researchers were impressed that 80 per cent of respondents have reviewed their internal controls over the past two years.

However, he warns that that complacency may be creeping in.

Skelton says although 89 per cent of respondents see fraud as a problem for the sector and 70 per cent see it as an inherent problem for all organisations, only 14 per cent see it as a problem for their own organisation.

As well he says while 87 per cent of respondents assess fraud prevention as important, only 24 per cent of respondents have implemented a fraud control policy and only 13 per cent have implemented a whistleblowers policy.

Prof, Peter Best, Head of the School of Accounting, Economics and Finance at the University of Southern Queensland, said that for the first time the survey asked respondents to assess the potential impact of a fraud on their organisation and found 42 per cent of respondents perceived the impact of a fraud on their organisation of $50,000 to $100,000 would be catastrophic.

Best says the main lessons for the NFP sector are for the Board to practice strong governance and risk management, establish a fraud control policy, implement and promote a strong ethical culture through a code of conduct, establish a whistle-blower policy and establish and monitor internal controls.

The report can be downloaded at www.bdo.com.au/survey/not-for-profit/2010/