Non-profit groups need to be vigilant about fraud - survey

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Unsuspecting not-for-profit organisations may have staff pilfering money from the accounts, says a chartered accounting firm.

This year's BDO Not-for-Profit Fraud Survey, released today, collates the results from 645 New Zealand and Australian respondents to try to gauge the level of fraud in the sector.

BDO partner Andrew Sloman said despite the survey showing a fall in fraud from 19 per cent six years ago to 12 per cent now, it was likely some fraud was going undetected.

"If you look at the statistics that have come out of the survey, the average duration of each fraud is 14 and a half months, and the average online payment fraud is $370,000.

"So what that's saying is that they go on, they're large, and most of them are not necessarily detected by financial statements which a lot of charities and not-for profits [NFPs] have, but are more or less detected by tip-offs and internal reviews."

Furthermore, organisations often appeared to see fraudulent activity as a common occurrence in the sector, but most thought they would never be affected.

"86 per cent of respondents said that fraud was a problem for the sector but only eight per cent believe it's a problem for them as an individual organisation. People are saying this is a major risk, but it's not going to happen to us, which I think is a bit dangerous."

He said more rigorous and proactive checks were needed in many NFP organisations.

"A financial statement and audit of a charity is not necessarily directed to pick up fraud. It's there to sign off on the financial statements that buildings exist etcetera."

He said NFPs should check what controls they had in place, and identify the fraud risks of their businesses. He recommended having dual signatories for payments, multiple people involved in the transaction stream, and proactive, regular checks of bank accounts.

The survey found the average fraudster was a female aged in her forties, and was a paid employee in a non-accounting role.

Often if fraud was discovered, it was not publicised or reported for fear of the loss of reputation or donations, Mr Sloman said.

"Generally there's a motivation to keep fraud quiet because it can impact on their reputation, and their image, which can then flow through to the revenue side."

One recent high profile fraud case came from Te Puia, a popular tourist attraction in Rotorua. Former ticket seller Te Raumahara Elizabeth Pene, 52, admitted in court to stealing $324,000 between July 1, 2008 and December 30, 2010.

At times the former employee took home more than $1000 in cash a day, by taking money through two methods.

Trevor Garrett, head of the New Zealand Charities Commission, called for a change of thinking to make sure charities both recognised and reported fraudulent activities.

"The significant amount of cash reflects the nature of many non-profits where there is a high level of trust instilled in staff. In addition to preventative measures being put in place, I would encourage fraud victims to report the offending so other organisations become aware of offenders and their methods to reduce similar actions further down the line."