A recent Washington Post article brought to light numerous instances of fraud by non profit organizations as well as the misuse of Form 990 disclosures. It is believed that over a thousand non profit organizations reported a “diversion” of assets and funds totaling close to $500 million. The losses were attributed to various types of embezzlement, theft, fraudulent investment practices and the unauthorized expenditure of funds. Between 2008 and 2012, ten of the largest non profit companies in the country showed extensive levels of fraudulent activity.
The Form 990 disclosures received the most intense scrutiny. Companies did little to explain where the funds went or if any investigations were forthcoming. Instructions for Form 990 disclosures clearly state that monies that have been misappropriated must be accounted for and corrective measures taken to prevent the fraudulent practices from recurring. Form 990 disclosures are made public. The IRS, as well as the media and the general population can review the documents at any time. Once the Form 990 disclosure is filed, it is accessible to the public and anyone has the right to view its contents.
Non profit organizations can lose credibility and much of their backing if fraudulent practices are allowed to continue. Organizations must closely monitor their financial holdings and transactions to prevent the misuse of funds and fraudulent activity from occurring. Those who do not may lose their tax exempt status as well as popular public support. If illegal activity is allowed to continue, legal action may take place in an attempt to prevent further misuse of company funds.
Non profit organizations can prevent fraud and other types of illegal activity by better training their employees in how to spot irregular transactions or documentation. Employees should also have in place a way of making reports anonymously. This would prevent them from experiencing any form of retaliation from other co-workers. In addition, management should create stricter policies for dealing with individuals who are caught misusing company funds in any way.