Nonprofits and Fraud: Are Leaders Too Complacent About the Risk?

April 22, 2015

Findings of New National Survey of Nonprofit Leaders Suggests They May Have a False Sense of Security When It Comes to Fraud Risk and Prevention

NEW YORK, NY--(Marketwired - April 22, 2015) -

When asked to name their top challenges, leaders of nonprofits were most likely to say "raising funds in a competitive environment with higher expectations for ROI" (74%), "leadership capacity deficit" (54%) and "populating the board with the people with the right fit" (51%), according to the findings of Nonprofit Pulse, a new national survey of 103 nonprofit leaders by accounting firm Marks Paneth.

But only 1% named "fraud by staff" as a top challenge, according to the survey, which was fielded during the fourth quarter of 2014 and whose respondents included Presidents, Executive Directors, Board Chairs, Chief Operating Officers and Chief Financial Officers of nonprofits with annual revenues between $10 million and $100 million.

"On the one hand, it's encouraging that nonprofit leaders are confident about the integrity of their staff. On the other, it's probably worth asking whether they're overlooking or actively not working to mitigate the risk of fraud," said Michael McNee, CPA, Partner-in-Charge of the Nonprofit and Government Services Group at Marks Paneth. The practice serves approximately 150 nonprofit and government clients.

When asked, nonprofit leaders said they have established practices to reduce the risk of fraud: 85% of nonprofit leaders said that their organizations "have appropriate separation of incompatible duties"; 84% have a "clear code of ethics" that is emphasized throughout the organization; and 72% employ background checks upon hiring.

However, only 20% of leaders said their organizations have a "facilitated fraud risk assessment process."

"The practices that the majority of nonprofits have in place may in fact just be 'table stakes' and probably do not go far enough," Mr. McNee said. "Fraud at nonprofits is arguably much more common than most organization leaders would suspect." A third party analysis of federal filings that shows that more than 1,000 nonprofits said they had discovered a "significant diversion" of assets between 2008 and 2012(1). And another study concluded that nonprofits and religious organizations accounted for one-sixth of all major embezzlements, placing the nonprofit sector second only to financial services(2).

When pressed, nonprofit leaders said that there are significant issues when it comes to preventing and identifying and instances of fraud. Many leaders -- 43% -- said the cost associated with facilitating fraud risk assessment represents a real challenge in that regard. And almost a third (32%) admitted that background checks only go so far in prevention, as many fraudsters are first-time offenders. Further, 37% of financial officers listed collusion as a top challenge to preventing fraud, compared with only 5% of other executives.

"We believe it's worthwhile for nonprofit executives to ask themselves if they are overlooking fraud risks. It's easy to do, because one often doesn't see fraud as a problem until it happens, and, importantly, most nonprofits are not taking the risk assessment steps that would reveal how potentially vulnerable they actually are," Mr. McNee said.

To receive a copy of the Nonprofit Pulse and/or to speak with a leader from Marks Paneth's Nonprofit and Government Services Group, please contact Katarina Wenk-Bodenmiller of Sommerfield Communications at (212) 255-8386 or


The Nonprofit Pulse: A Leadership Study from Marks Paneth represents the findings of a survey of nonprofit leaders in the United States. The 103 professionals participating in the research include Board Chairs, Presidents, Executive Directors, Chief Executive Officers, Chief Financial Officers, Treasurers, Chief Operating Officers, Development Directors, Vice Presidents and Board members and are with organizations with annual budgets between $10 million and $100 million. The research employed self-administered questionnaires completed online by respondents. The national list of professionals surveyed was compiled by Marks Paneth LLP, the research sponsor, and by Michaels Opinion Research. Interviews were completed during the period of November 12 to December 31, 2014.

(1) Stephenson, Joe & Flaherty, Mary Pat. (2013, October 26). 'Inside The Hidden World Of Thefts, Scams And Phantom Purchases At The Nation's Nonprofits'. The Washington Post. Retrieved from

(2) Marquet, Christopher T. (2013, May 13). The 2012 Marquet Report on Embezzlement. Retrieved from

About Marks Paneth

Marks Paneth LLP is an accounting firm with more than 550 people, including over 70 partners and principals. The firm provides public and private businesses with a full range of auditing, accounting, tax, consulting, trade remediation and valuation services as well as litigation and corporate financial advisory services to domestic and international clients. The firm also specializes in providing tax advisory and consulting for high-net-worth individuals and their families, as well as a wide range of services for international, real estate, media, entertainment, nonprofit and medical practice clients. The firm has a strong track record supporting emerging growth companies, entrepreneurs, business owners and investors as they navigate the business life cycle.

The firm's subsidiary, Tailored Technologies, LLC, provides information technology consulting services. In addition, its membership in Morison International, a leading international association for independent business advisers, financial consulting and accounting firms, facilitates service delivery to clients throughout the United States and around the world. Marks Paneth, whose origins date back to 1907, is the 35th largest accounting firm in the nation and the 9th largest in the mid-Atlantic region. In addition, readers of the New York Law Journal rank Marks Paneth as one of the area's top three forensic accounting firms for the fifth year in a row.

Its headquarters are in New York City. Additional offices are in Washington, DC, New Jersey, Westchester, Long Island and the Cayman Islands. For more information, please visit

Katarina Wenk-Bodenmiller
Sommerfield Communications, Inc.
(212) 255-8386

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