Fraud Still a Threat to Australian NFPs: Survey

Just 28 per cent of Australian and New Zealand Not for Profits believe fraud is a direct threat to their organisation, despite the majority seeing it as an inherent sector-wide problem, according to the results of the 2014 BDO Not for Profit Fraud Survey.

The 2014 survey is the fifth biennial BDO survey of its kind, building on the findings from previous surveys conducted between 2004 and 2012.

BDO Not for Profit Lead Partner Chris Skelton said that, while the number of respondents who recognised fraud as a problem for their own organisation had significantly increased (up from 8 per cent in 2012), there is still much work needed to raise awareness across the sector and ensure organisations sufficiently protect their resources.

“Whilst the existence of fraud prevention measures is given as a reason why 72 per cent of respondents still don’t see fraud as a direct threat to their organisation, the effectiveness of these measures could explain the level of fraud that exists in the sector,” Skelton said.

“Fraud is an issue for all organisations, but there are particular risks for Not for Profit organisations.

“Suffering a significant fraud may jeopardise future funding sources, and even threaten the organisation’s very existence. Put simply, it is something Not for Profits just can’t afford to ignore,” he said.

Skelton said despite a steady decline in the number of reported fraud cases over the past nine years, organisations were still failing to implement risk management frameworks.

BDO Forensic Services Lead Partner David Ferrier said there has been a gradual decline in the number of fraud cases reported.  

“Just 10 per cent of organisations reported a fraud in the past two years – down from 19 per cent in 2006,” Ferrier said.

“What is concerning, though, is that 70 per cent of those organisations who experienced fraud over the past two years had suffered fraud in the past.

“This would suggest that some organisations aren’t learning from past experiences, and are still failing to implement adequate fraud control measures,” he said.

The survey found the average duration of the largest frauds reported was 14 months, with the majority of fraud committed by paid employees.

“Interestingly – or more concerning – collusion was present in 30 per cent of the largest fraud cases reported, with a board member involved in 31 per cent of those cases,” Ferrier said.

BDO Risk Advisory Lead Partner Marita Corbett said the impact fraud can have on NFP organisations can be severe.

“The average fraud recorded in our 2014 survey was $22,904,” Corbett said.

“The survey found that those organisations who didn’t have a Risk Management Framework suffered, on average, around $51,000 more than those respondents who did have such policies in place,” she said. “For any organisation, NFP or otherwise, these are significant sums.

“With the average fraud taking more than a year to complete, it is absolutely crucial that Not for Profits implement effective policies and procedures to help detect fraud internally.

“Tips from employees, volunteers and other parties is still the most effective way to discover fraud (35 per cent), so mechanisms such as an accessible whistleblower policy will not only improve the robustness of a NFP’s fraud prevention and detection systems, they are also cost effective.”

Key findings from this year’s survey include:

• Only 28 per cent of respondents see fraud as a problem for their organisation, yet 90 per cent see it as a problem for the sector.

• 83 per cent of respondents believe their organisation has a low risk of fraud.

• 55 per cent of respondents have a code of conduct, while 18 per cent have a fraud control plan.

• 54% of respondents did not report the fraud to the Police.

• 63 per cent of respondents terminated the perpetrator’s employment.

• 16 per cent of frauds were committed by volunteers.

• Of the largest frauds reported, the most common type of fraud suffered was cash theft.

• Of the respondents who experienced fraud, 70 per cent had suffered fraud previously.

• Collusion was present in 30 per cent of the largest frauds reported – in 31 per cent of those cases, the colluder was a board member.

• Only 18 per cent of respondents have implemented a whistleblower policy despite tip offs being identified as one of the most effective ways to discover fraud (35 per cent).

• The average amount of fraud reported was $22,904.

The full BDO report is available here.