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Nonprofit Ethics – Fraud

According to Merriam-Webster, fraud can be defined as:

Fraud (noun \ˈfrȯd\)

  • the crime of using dishonest methods to take something valuable from another person

  • a person who pretends to be what he or she is not in order to trick people

  • a copy of something that is meant to look like the real thing in order to trick people

According to the New York Times, approximately $40-50 billion per year is lost through charity fraud. Scandals, such as fraud, are found in nearly 20% of all nonprofits. I read in the news almost weekly about another charity being investigated for fraud.

Christina Bush wrote an article entitled Life Planning - Beware of Fraud in Non-Profit Organizations. One thing that almost everyone recommends (including Christina) is obtaining copies of the charity’s IRS 990 reporting form which can be obtained at the following link: Foundation Center’s 990 Finder

Beware…some charities massage data in their financial statements to make things look much better than they really are. Inconsistencies when comparing the organization’s financial statements to their IRS 990 reporting and their annual report sends up red flags and should be a concern.

The National Council of Nonprofits states in an article entitled Myth: Audits Uncover Fraud that independent audits are not the most effective way to uncover fraud. An organization’s internal controls will help more to reduce the risk of fraud.

What are you to do if you’re considering a donation to a charity? What if you have been approached to become a Board member of a charity? Check out my blog on Donor Due Diligence.

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