With decreased staff, changing donor bases, and increased costs, the COVID-19 pandemic put not-for-profits at an increased risk of financial fraud.
Regulators, including the SEC and DOJ, are prosecuting COVID-19-related frauds, the Government Accountability Office's experience after Hurricanes Katrina and Sandy has data analytic tools to identify anomalies and detect fraudulent activity, and the creation of an Inspector General position to oversee the proper use of government funds under the CARES Act have created several layers of scrutiny.
It is important to remember that times of financial stress and uncertainty can lead people to justify fraudulent behavior. Strong internal controls and adhering to compliance procedures can help prevent such actions.
To mitigate the risk if reviewed, not-for-profit organizations should be prioritizing an assessment of their internal controls and compliance procedures. In doing so, organizations will ultimately benefit by reducing their fraud risk and having available documentation of preventive measures if the regulators come calling.
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