7 Steps to Slow Down Nonprofit Embezzlement

Nonprofit embezzlement has the power to stop an organization in its tracks. In fact, nonprofits lose an average of $673,884 per embezzlement, according to The 2013 Marquet Report on Embezzlement. One of the many reasons that nonprofits are so vulnerable to fraud is their increased use of corporate credit cards. Credit card accounts are essentially another form of cash; without strong controls over their use, misuse of plastic can run rampant.

Consider the following seven best practices to slow down this potential fraud train when using company credit cards:

  1. Limit the use of credit card accounts. Only issue credit cards to employees who have a clear and demonstrated need for their use, such as purchasing managers. A side benefit of limiting authorized card users: It reduces the number of accounts that an organization has to monitor.
  2. Institute credit purchase contracts. The contracts should clearly explain appropriate – and inappropriate – uses for corporate credit. They should also outline the repercussions of using the cards for non-authorized purposes—from fund repayment to termination.
  3. Set reasonable spending limits. Establish lines of credit that are in line with the employee’s typical monthly expenditures. Also, consider restricting employees’ ability to obtain cash advances.
  4. Use the credit card provider’s alert system. Many of today’s banks offer unusual transaction holds and alerts as a credit card feature. However, as useful as those alerts are, what is deemed as “unusual” is often determined by the bank. An organization can set up a variety of alerts based on certain triggers, such as transactions that exceed a certain amount, when a certain percentage or a pre-determined balance is exceeded, and/or transaction attempts outside of the country.
  5. Maintain an authorized user’s file. Keep an inventory of credit card account numbers and authorized users.
  6. Review credit card statements monthly.A board member should review monthly credit card activity and take prompt action against unusual activity. Employees are far less likely to use their cards for inappropriate items if they know they are being watched. That fact is also true for company executives.
  7. Mandatory expense report documentation. Require receipts, not just the credit card statement or invoice, for all expense reports.

CRI Can Help You Stop Fraudsters in Their Tracks

These seven essential preventive and detective controls can help you slow or stop would-be fraudsters in their tracks. For more tips on preventing fraud, download our CRInsight, The Not-for-Profit’s Guide to Fraud Prevention – and call CRI’s nonprofit CPAs for help tightening your credit card policies and practices.