Every year for the past decade, the Not-for-profit (NFP) sector has been voted the most trusted in the world – but just how valid is that ranking when it comes to the ‘F’ word (fraud) and corruption? The sector itself remains highly vulnerable, as it is almost completely reliant on developing and maintaining a high level of public and donor trust. Despite this, there continues to be an explained complacency when it comes to the topic of fraud.
While acknowledged by many NFPs as a problem for the sector, corruption is rarely viewed as an issue when it comes to assessing their own organisation. Unless NFPs recognise, and start to properly manage fraud and corruption risks, the reputations and public confidence – built up over many years – could be wiped out overnight. So where does this apparent reluctance to deal with the issue come from?
The Unravelling of an NFP fraud scheme
A recent fraud investigation I carried out for a large international NFP is a textbook example of how fraud can occur in the sector. Despite one of its humanitarian projects being externally audited four times (two external financial audits, a capacity audit and a specific project audit), vague mutterings continued to circulate about improprieties. None of the four audits had highlighted any irregularities. On the contrary, the capacity audit stated that the project had been “appropriately designed, well planned, and effectively managed,” while the project audit confirmed that all relief items had been physically delivered to all beneficiaries. More