Fraud Hotline

Hotline Service Discourages Unwanted Behavior at Work

Fraud Hotline, LLC is anonymous and confidential hotline that serves as a best practice by enhancing existing whistleblower policies while discouraging unwanted behaviour. The services can be used by employees, volunteers, board members, and others within the organization to anonymously report potential fraud, ethical issues, and other concerns such as: conflicts of interest, self-dealing, sexual harassment, violation of company policy, ethics violations, misconduct, and unfair labor practices.Our hotline serves as a best practice by both enhancing whistle-blower policies and discouraging unwanted behavior. Individuals within a registered organization may submit reports of potential fraud, ethical issues, and other concerns anonymously 24-hours a day using our secure online form or toll-free telephone number.

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Tips for Nonprofit Organizations to Prevent and Detect Fraud

All organizations are susceptible to fraud. Nonprofit organizations must implement adequate internal controls to help mitigate risk and protect themselves from potential losses. According to the Association of Certified Fraud Examiners Report to the Nations on Occupational Fraud and Abuse:

• A typical organization loses 5% of its annual revenue to fraud. An average fraud lasted 18 months before being detected and caused a median loss of $140,000.
  
  
• Fraud is more likely to be detected by a tip than by any other means. Over 40% of all fraud is detected by a tip and nearly 50% of all tips come from employees of the organization.
  
  
• Small organizations are disproportionately victimized by occupational fraud because they typically lack adequate anti-fraud controls compared to their larger counterparts.
  
  
• Providing individuals a means to report suspicious activity is a critical part of an anti-fraud program. Fraud reporting mechanisms, such as hotlines, should be set up to receive tips and should allow anonymity and confidentiality.
  
  
• Anti-fraud controls appear to help reduce both the cost and duration of the fraud, with the most effective of these controls being a "hotline". Organizations with fraud hotlines suffered much smaller losses than organizations without them.
  
  
• More than 85% of fraud perpetrators had never been previously charged or convicted for a fraud-related offense.
  
  
• Organizations tend to over-rely on external audits. While they can have a strong preventative effect, they should not be relied on exclusively for fraud detection.
  
  
• The cost of fraud — both financially and to an organization’s reputation — can be damaging. Since nearly half of victim organizations were unable to recover their losses, proactive measures to prevent fraud are critical.

Fraud and embezzlement in nonprofit organizations is especially destructive, not only to the reputation of the organization with donors and grant makers, but also to the community it serves. All nonprofits, no matter the size, are susceptible to fraud and embezzlement. However, small nonprofits are disproportionately victimized, and are less likely to recover. They often rely on volunteers and Board Members, or employ a few “trusted individuals” - but they lack adequate internal controls to protect themselves. Although fraud and embezzlement is hidden, by nature, the following are a few simple and basic policies that can be implemented to help prevent and detect fraud:

• Require that checks over a pre-determined threshold are countersigned by two responsible employees and that original invoices accompany all disbursements.
  
  
• Review computer access for proper administrative rights that is limited to job responsibilities. Restrict the addition or modification of vendors and employees in the accounting software.
  
  
• Segregate duties for collecting mail, recording funds, and making deposits.
  
  
• Segregate duties for approval of invoices, posting to accounting software, printing of checks, signing of checks, and mailing.
  
  
• Segregate duties for preparation of the bank reconciliation from those involved in the deposit and disbursements procedures.
  
  
• Outsource the accounting functions if you do not have sufficient or competent staff.
  
  
• Require the use of purchase orders and obtain multiple bids for significant expenses and contracts.
  
  
• Send a duplicate copy of the monthly bank statement (with canceled check copies) and credit card statements to the Treasurer or Board President for review.
  
  
• Maintain current accounting records and review variances in comparison with the prior year and a pre-determined budget.
  
  
• Require employees to take vacations annually and ensure others are cross-trained for their responsibilities.
  
  
• Obtain adequate insurance coverage and bond any independent contractors or service providers.
  
  
• Hire the right people – perform background checks, credit checks, and verify all references.
  
  
• Conduct an independent audit by a reputable CPA firm on an annual basis. Have the auditor perform periodic review of the internal controls and request a “management letter” for ways the organization can improve operating efficiency and strengthen internal controls.
  
  
• Hold an “executive session” at each and every Board meeting to allow individuals to discuss concerns.
  
  
• Maintain written policies, procedures, code of ethics, conflicts of interest, and provide annual communication to all employees, board members, and volunteers.
  
  
• Implement a whistleblower hotline. It is one of the easiest and most cost-effective ways to set the proper “tone at the top”. Nonprofit organizations are required to have a written whistleblower policy (Form 990, Page 6, Question 13), but the use of a third-party anonymous and confidential service is widely regarded as a best practice.

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