The Hard Facts

“Every year, over half of the non-profits and
charities in Canada lose money as a result
of fraud. Are you protected?"

Each year, Canadian not-for-profit, charitable and social enterprises lose money in ways that are preventable and in ways they might not even be aware of. In some cases, the damage is so deep that the organization cannot recover.

Employee Fraud, Theft and Embezzlement

Every year, over 50% of not-for-profit organizations and charities in Canada lose money as a result of employee fraud. On average, this represents 5-7% of annual sector revenue.

  • Median losses exceed $150,000 and occur over a period of 18 months.
  • More than half of the fraud will be committed by trusted staff members who have been with the organization for more than 6 years. They are managers, officers and directors. Typically, they are also well educated and without a history of criminal behaviour. Most have never been punished or terminated.
  • While external audits find only 5% of fraud overall in smaller organizations, they suffer disproportionately large losses due to occupational fraud.

This is preventable.
The Association of Certified Fraud Examiners (“ACFE”) found two striking similarities in organizations affected by employee fraud, theft and embezzlement:

1) their directors lack financial management expertise to govern effectively; and

2) the organization has poor financial management controls at the operational level.

Negative effects are personal and public.
We’ve all read headlines and reports about financial mismanagement in non-profit organizations.

In extreme cases, directors are sued and suffer serious reputational damage. Operational costs increase as public trust diminishes. Talented employees are skeptical of joining the organization. Funders revisit agreements. Suppliers demand secure payments that affect cash flow. Criminal charges could affect the organization’s ability to continue operations.

Are you concerned?
Don’t be a statistic. You can choose to do something to protect your reputation and that of the cause you care about. Contact us today to discuss how we can help

 

How to Prevent and Detect Occupational Fraud

Most occupational fraud is preventable. This is true regardless of who commits the fraud, who oversees it or the size of your organization.

NFPOs with strong financial management policies and procedure experience significantly lower losses due to fraud.

You don’t have to wait for an audit to determine your organization’s internal risk. Most fraud is uncovered through tips from employees, customers and vendors, management reviews and internal controls.

Humanity Financial Management Inc. works with clients to review existing financial management policies and procedures and examine internal controls to identify areas of risk.

Then, we collaborate with decision makers to recommend improvements.

Contact us to learn more.

Non-Compliance with Canada Revenue Agency (CRA) Regulations

Less than 10% of registered charities and 25% of not-for-profit organizations comply fully with the Canada Revenue Agency (CRA) rules and regulations. As a result, some are subject to fines, penalties and compliance agreements. Others will lose their status as a Registered Charity or Not-for-Profit Organization.

If the status of a registered charity is revoked, the organization is prevented from issuing income tax receipts.  In addition, an immediate 100% revocation tax is imposed – all of its assets must be immediately distributed to the CRA or another registered charity.

If the status of a not-for-profit organization is revoked, it can be required to pay tax on all profitable activities (even if those profits are otherwise offset by other activities that create losses).

In addition, incorrect payroll, GST returns and rebate requests uncovered by audits can result in retroactive fines and penalties.

Many charities file incorrect annual T3010 returns. Since these returns are available to funders and donors – errors can cause funders and donors to lose confidence in organization’s ability to competently manage and report on its finances.

Humanity Financial Management Inc. helps organizations understand and comply with CRA regulations. We will work with you to significantly reduce any exposure that might result in a CRA audit or in expensive interest payments and embarrassing penalties. We can assist in a review of ongoing activities to determine CRA compliance and then identify opportunities to protect your organization.

Call us now to find out how we can help you.

Frequeny of Occupational fraud Schemes in Not-for-profit organizations and charities:

Scheme%
Cheque Tampering35.0
Billing32.5
Expense Reimbursement32.5
Corruption30.0
Payroll20.0
Non-Cash15.0
Cash-on-hand12.5
Cash Skimming12.5
Cash Larceny7.5
Financial Statement Fraud7.5
Register Disbursements2.5

In some cases, the fraud will become public knowledge. Both the organization and its directors will suffer reputational damage as a result of media coverage and lingering questions.

*Report to the Nations on Occupational Fraud and Abuse, 2014 Global Fraud Study

“This is a workshop that every board member of a community foundation should attend.
I learned some great tips and tools for improving director education as well as clarity of roles
and responsibilities.”

Carol Coffey Community Foundation of Whistler