11 Steps Nonprofits Can Take to Minimize Risk of Theft and Fraud

Shield Financial Controls

Are reports about financial abuses at other nonprofits causing you to reexamine the security of your own organization? In the wake of the recent articles1,2 on fraud in the nonprofit sector, executives and board members remain busy assuring funders, constituents, and themselves that they too won’t end up in the news.

Fraud can occur any time assets are managed without a system of “checks and balances”. Many nonprofits operate with minimal overhead, causing overlap of duties and resulting in weakened controls. As organizations grow in size and complexity, more sophisticated systems are required to address the increasing variety and volume of financial transactions.

While it’s not feasible to eliminate the possibility of fraud, there are ways to minimize your exposure. Implementing the following procedures will aid in establishing an environment where tight fiscal controls are the norm.

  1. Do not delegate e-bill approval or check signing responsibility. Top management is responsible for the finances and should always retain authority for approving payments. Signature stamps are problematic by nature and should be prohibited.
  2. Implement electronic safeguards. Make sure you aren’t unintentionally giving check signing privileges to those who aren’t authorized. Employees with debit cards and electronic access to transfer funds essentially have the same authority as a check signer.
  3. Have checks printed directly from your accounting system. Paying bills with system generated checks reduces the risk of alteration. A system reliant on handwritten checks is more vulnerable to document manipulation.
  4. When appropriate, let vendors draft routine payments. Allowing certain companies to automatically withdraw their payments is the most efficient way to pay a bill, while also eliminating the chance that your bank account and routing number will fall into the wrong hands.
  5. Keep check archives accessible. Make sure your bank returns all original cancelled checks (preferred) or maintains electronic images so that you can easily verify payees. Many banks only provide online access to check images for 90 days.
  6. Use two people when processing payments by mail. If your organization receives cash, check or credit card payments, these duties need to be separated and handled by at least two staff members.
  7. Always give customers a receipt for point-of-sale (POS) transactions. Since cash registers are most often operated by one person, the receipt serves to verify proper posting of sales. If receipts can’t be printed, then be sure the display on the cash register faces the customer so the sale can be verified.
  8. Outsource or automate customer payments. A variety of services allow donors and members to make payments by credit card via the web or mobile device. Use a bank lock box if you can’t establish separation of duties for payments received by mail. If possible, eliminate all cash and check payments for small transactions.
  9. Monitor your revenue. Membership, donor management, and POS systems provide reports to help identify irregularities. Be familiar with key revenue metrics and check them on a regular basis.
  10. Know your numbers. Managers who have a firm grasp of their financial results are rarely subject to malfeasance. When management is hands-off, the organization is vulnerable to theft that may go undetected for an extended period.
  11. Communicate with staff. Statistically, fraud is most often discovered as the result of a tip. Management must foster a culture where all constituents are encouraged to keep a watchful eye. It is imperative that everyone understands their respective stake in protecting the organizations’ assets.

It’s important to note that Financial Statement audits are not intended to detect fraud. Their purpose is to validate the accuracy of the financial statements. Although fraud may be discovered during an annual audit, that alone is not an effective measure for prevention.

Relying on outside vendors vigilance is another common error in fraud prevention planning. A misperception exists that banks closely monitor checking accounts. Banks may catch the occasional unauthorized, forged, or missing signature(s), but this is not a reliable method for preventing fraud. Conducting random reviews of bank account activity is the best way to deter felonious activity.

These basic precautions can help protect nonprofits from financial losses and damage to their credibility. Finally, if you are still concerned about the vulnerability of your organization, seek an independent review. Public loss of financial integrity is not the kind of news that any nonprofit should be making.

(1) Nonprofit Fraud: How Good are Your Internal Controls?, Strategic Finance, March 2017
(2) Inside the Hidden World of Theft, Scams, and Phantom Purchases at the Nation’s Nonprofits, Washington Post, October 2013

Author: Tom Joseph, Founder & CEO, Bookminders

This article was recently featured on the Maryland Nonprofits website as a guest blog post.

Bookminders Enters Baltimore Area with Fourth Office Opening

FOR IMMEDIATE RELEASE – Baltimore, MD – November, 2017 –  Bookminders, a premier provider of outsourced bookkeeping services, made Pikesville, MD the location of its fourth office. Client Relations Manager, Francoise Wilson, who has been with the company since 2005, is returning to her hometown and will oversee Bookminders’ expansion into the Baltimore market. Founded in Pittsburgh, Bookminders is known for its commitment to work-life balance offered to 80 home-based employees who work for their nearly 400 clients. 
Founder and CEO, Tom Joseph, states “The inspiration for Bookminders occurred when my college educated sisters, who were busy raising families, had difficulty finding jobs with flexible work hours. This led to the creation of a corporate culture where work-life balance is the rule, not the exception. Bookminders success is due to our ability to attract highly skilled accountants and our cloud-based platform which provides the backbone for our network of home-based accountants.” 
It is precisely this combination that has garnered a host of awards for the organization. Bookminders has been recognized by the American Society of Women Accountants as the Work/Life Balance “Company of the Year”, named Pennsylvania’s “Home-based Business Champion” by the U.S. SBA, and was a seven-time recipient of the Pittsburgh Business Times’ “100 Fastest Growing Private Companies”.
Bookminders provides timely, accurate and cost-effective bookkeeping for a variety of nonprofits and small businesses in Pittsburgh, Delaware Valley, and now, Baltimore. Their unique approach affords work-life balance to a staff of degreed accountants, while providing clients access to highly skilled professionals they otherwise could not afford. 

Bookminders offers flexibility in an often inflexible industry.

Improved Work-Life Balance Benefits Women in Accounting

Interest in increasing work-life balance is on the rise. “More than one in four employees (27 percent) at organizations that are not perceived to support work-life balance plan to leave their companies within the next two years.”1 This issue especially impacts women in accounting. The AICPA recognizes that, while women initially represent 50% of new accountants, a lack of family-friendly environments leads to poor staff retention.2 Many firms attempt to offer flex programs to combat this, but in many cases, those programs don’t go far enough in restoring work-life balance, and the loss of key talent persists.

One solution to providing a work-life balanced environment can be found in the virtual workplace. The demand for this type of remote work continues to increase. Global Workplace Analytics reports that “79% of people want to work from home [and] 36% would choose it over a pay raise.”3 Happily for accountants, “Acceptance of cloud-based solutions in the finance function continues to rise. 72 percent of U.S. respondents said they are either using cloud-based solutions or plan to do so in the future, compared to 62 percent in 2016.”4

Bookminders knows that combining flexible work policies and cloud based technologies permits professional growth and unparalleled work-life integration. In fact, we’ve been recognized by the American Society of Women Accountants for doing just that. Our employees enjoy a flexible part-time schedule, access to training and support, and opportunities to work on challenging assignments.

Bookminders provides timely, accurate and cost effective accounting services to small businesses and nonprofit organizations. Clients use Bookminders as an alternative to hiring in-house staff and benefit from cost savings, improved financial management, access to qualified staff and elimination of distractions due to turnover. Click here to learn more about our services.

[1] Haygroup:
[2] AICPA:
[3] Global Workplace Analytics:
[4] 2017 RHT Benchmarking Report:

Bookminders 2018 Year-in-Review


Does Work-Life Balance Impact Job Satisfaction?

According to a recent IMA survey, women in their twenties have the second highest job satisfaction rate while the rate is the lowest for women in their thirties. Job satisfaction sharply rises for women compared to men in their sixties. Is work-life balance a driving factor?

Women in their 30s are busier than ever balancing careers, families, and personal interests. Work-life balance is often hard to achieve, and may be a key reason for job dissatisfaction in this age group.

Figure 5 shows an age-range breakdown for the percentages of those who said they are very satisfied overall with their present job. Overall, about 23% said they were very satisfied with their job. Job satisfaction is relatively high for women in the 20-29 age group and for both men and women in the age 60-and-older group. The lowest overall satisfaction is reported by those in the 30-39 age group. (IMA: The Association of Accountants and Financial Professionals in Business 2015 U.S. Salary Survey

IMA Graph

Does improved work-life balance increase job satisfaction? We think so. At Bookminders, work-life balance is the rule, not the exception.

Our staff is comprised of highly skilled accounting professionals who typically work 20 to 35 hours per week. Employees enjoy a flexible schedule, access to training and support, and opportunities to work on challenging assignments. Internal surveys report high job satisfaction and roughly half of Bookminders’ seventy employees have been with the company for at least five years.

And we’re growing.

Please let us know if you are interested in employment at Bookminders. Qualified candidates are invited to an Open House to learn more about our work environment and meet our staff.

Bookminders provides timely, accurate and cost effective accounting services to small businesses and nonprofit organizations. Clients use Bookminders as an alternative to hiring in-house staff and benefit from cost savings, improved financial management, access to qualified staff and elimination of distractions due to turnover. Learn more about our services.

Creating a Budget

Using a budget is a good way for an organization to review and monitor the performance and achievements of management and the organization as a whole. The level of detail needed in preparing a budget depends on the organization’s structure and types of activities to be monitored.

A budget should consist of realistic projections about how much revenue can be generated and what the associated expenses will be. Projections should be based on past activity and realistic expectations of future operations. The overall goals of the organization should also be considered.

The budget process for an upcoming year should begin several months before the beginning of the new fiscal year (or budget year, if different). Management, staff and board members should all participate in the budgeting process to set realistic goals for which they can later be held accountable.

Steps in the Budget Process

  • Review historical activity, achievements and fiscal performance for the past year (or years). Our company can assist you in compiling data for use in this process. Actual Profit and Loss statements can be exported to Excel to use as a starting point for the budget and detailed reports of revenues and expenses can be prepared for analysis.
  • Determine costs that are fixed (those that do not fluctuate with the organization’s level of activity) and costs that are variable (those that do fluctuate with the organization’s level of activity).
  • Determine and agree on the goals and objectives to be achieved in the upcoming year. Set realistic short and long-term goals that fit with the organization’s strategic plan or mission.
  • Estimate the revenues and costs required to achieve your objectives, including staff, supplies and other resources. Make sure to take into account upcoming changes and areas of expense that can have significant fluctuations. Keep in mind that a projected increase in revenues will likely have a corresponding increase in variable costs. Don’t forget to consider external factors like the economy.
  • When budgeting for personnel costs, be sure to plan for any increased staff that may be associated with an anticipated increase in revenues. There may be many hidden costs associated with hiring new staff. Consider recruiting costs, training, support, office space, furniture, equipment and supervision costs in addition to salaries and benefits.
  • Review the revenue and expense projections. At different times organizations may incur a deficit, realize a surplus, or just break even. Determine if the overall projections are reasonable and if they support the organization’s goals.
  • Consider the accounting structure, chart of accounts and type of reporting you need in order to compare the budget projections to actual. Your representative can assist in this part of the process. See also Budget Reporting Options document (describes the types of budget reporting that can be provided).
  • Review Budget vs. Actual reports throughout the year and adjust your plans and expectations accordingly.

Minimizing Exposure to Fraud – Part 2: Cash Receipts and Internal Controls

Small businesses and nonprofit organizations may have more exposure to fraud since they often do not have the resources or systems available for fraud prevention. The following recommendations can help organizations minimize exposure:

Cash Receipts Controls

  • Reconcile Point-Of-Sale Systems on a daily (or per shift) basis.
  • A cash deposit should be made for each closing to simplify the tracking of this cash.
  • Monitor the cash over/short account for variances between the cash deposit per the POS system and the actual deposit.
  • Review voids and coupons entered into the system.
  • Implement a policy of providing receipts for all cash purchases.
  • This will minimize the opportunity for employees to siphon funds from a cash business.
  • Monitor POS reports for cash refunds or credits.
  • Consider using a bank “lock box” if you receive a high volume of checks.
  • Checks are mailed directly to the bank for deposit.
  • Review receivables and pay attention to adjustments or credits that could indicate subverted payments.
  • Adhere to a numerical sequence for checks and also for invoices, cash receipts, purchase orders or other documentation.
  • Follow up on missing documents.

Employee Reimbursements

  • Eliminate petty cash accounts or keep petty cash balances to a minimum.
  • If petty cash accounts are used, perform frequent reconciliations of cash and receipts.
  • Do not provide employees with company credit/debit cards.
  • Employees should use personal credit cards for business expenses and be reimbursed for valid expense receipts.
  • Employees who use company credit cards are less likely to submit timely expense reports.
  • If reimbursement is needed sooner – Issue cash advances with a signed cash advance agreement that allows the employer to deduct the advance amount from the employee’s paycheck if receipts are not provided.

Separation of Duties

  • Make sure that appropriately authorized personnel are responsible for reviewing and approving all supporting documentation related to disbursements.
  • Make sure that the person responsible for reconciling bank accounts is not a check signer or preparer of deposits.

Employment Screening and Orientation

  • Thoroughly screen individuals and perform criminal background and credit checks before hiring.
  • Be wary of recruits who have falsified information about employment history or have poor credit.
  • Provide training to new and existing employees.
  • Make employees aware of internal control policies and let them see that the control processes are carried out consistently.
  • Perception of strong controls can be a deterrent.
  • Provide employees with an anonymous way to report fraud.
    Report acts of fraud to the appropriate law enforcement agencies.
  • Help ensure that other organizations do not hire people who have a history of fraud in positions where they have an opportunity to become repeat offenders.

Internal Audits & Financial Reviews

  • Perform internal audits on a periodic basis.
  • Having management staff or board members conduct a detailed analysis of bank account activity for a random period of time may uncover acts of fraud, but most importantly it sends a message to staff that procedures are in place to catch those who misappropriate funds.
  • Although cancelled checks may not be returned with bank statements, images of cleared checks can usually be viewed via the bank’s website and should be reviewed in order to identify inappropriate payees.
  • Reports can be provided in printed or PDF format in order to facilitate the review of this information.
  • Online access to check images, along with a PDF report of checks recorded in QuickBooks, make it possible for management and/or board members to review this information from anywhere.
  • Prepare budgets and review actual activity compared to budget for unusual variances.
  • Take action on reports of internal control weaknesses that may be provided by your auditors. Determine if there are ways that the organization can help reduce or eliminate these weaknesses.

Minimizing Exposure to Fraud – Part 1: Checking Account Controls

Small businesses and nonprofit organizations may have more exposure to fraud since they often do not have the resources or systems available for fraud prevention. Fraud can occur when an employee is provided with the opportunity to handle cash or assets without a system of “checks and balances” in place. While there is no way to completely prevent fraud, there are ways to minimize the risk and increase the chance of detection.

When considering an organization’s vulnerability to fraud, it is important to keep the following in mind:

  • Financial statement audits do not detect fraud. Audit reports specifically state that they are not intended to detect fraud. Fraud may be discovered during a financial statement audit, but an audit is not an effective means of protecting your organization from fraud.
  • Banks do not guarantee signature verification. Although your bank may notice an unauthorized signature or missing signature(s) on a check, the volume of bank activity makes signature verification an unreliable method for protecting against fraud.

The following recommendations can help organizations minimize exposure:

Checking Account Controls

  • Do not delegate responsibility for check signing. CEOs and Executive Directors are ultimately responsible for the finances of an organization and should retain check signing authority.
  • Do not use signature stamps for checks.
  • Have all checks printed from QuickBooks (or your accounting system). Computer generated checks provide a level of assurance that the payee on the check matches that recorded in the system and reduces the risk of alteration.
  • Minimize handwritten checks. Although the bank reconciliation process verifies check amounts and numbers, it is not often possible to verify the payee.
  • Request that the bank return cancelled checks (or electronic images) with your bank statements and verify that the payee on a cleared check matches the payee in the accounting system.
  • Endorse checks for Deposit. Immediately upon receipt, use a stamp or endorse all checks received with “For Deposit Only” along with the company’s bank account number.
  • Have bank statements mailed to a separate address.
  • Open and review bank statements when received – before providing statements to accountant for reconciliation.
  • Limit access to bank account PIN numbers and avoid the use of debit cards. Providing employees with codes or software that enables them to transfer money essentially provides them with check signing authority.
  • Do not allow anyone to misrepresent themselves as you by giving them your password, or allowing them to sign your name. Allowing an employee to sign your name, even on credit card purchases, could compromise your legal recourse if fraud or embezzlement occurs.
  • Provide only original documents for posting and payment processing. Using original documents can prevent fraudulent alteration of document copies.

Preparing for an Audit

Definition: An audit is an examination of an organization’s financial statements by an independent certified public accountant (CPA).

Who’s Required To Have An Audit: Nonprofits audit requirements vary by state. For example, Nonprofits with charitable contributions greater than $300,000 are required to submit audited financial statements to the Pennsylvania Bureau of Charitable Organizations within 135 days after the end of their fiscal year.

Preparation: To be well prepared for an audit, you should:

  1. Review the auditor’s prior year recommendations to ensure any significant weaknesses have been addressed. Also review the auditor’s prior year adjusting entries to see if any corresponding adjusting entries need to be made for the current year.
  2. Ask your auditors for a list of reports and documents they’ll need for the audit, which will probably require you to assemble:

    • Trial Balance and/or General Ledger Bank confirmation requests
    • Bank statements and reconciliations
    • Reconciliation of activity in balance sheet (and sometimes income statement) accounts
    • Board meeting minutes
    • Updates to internal control procedures
    • Grant acceptance letters
    • New contracts and leases
    • Bills for fixed asset additions
    • Lists of vendor bills and customer invoices (including outstanding A/P and A/R) to enable the auditor to select items for review or confirmation
    • Reports of transactions subsequent to year end up until the audit report date
    • Bank statements and reconciliations subsequent to year end up until the audit report date
    • Draft financial statements, footnote disclosures, and/or Statement of Functional Expenses
  3. Be prepared to discuss:

    • Changes in governance, management, ownership, and personnel
    • Changes in operations and technology
      Economic/industry developments and their impact on your operations
    • Estimates used in the financial statements, such as allowance for uncollectible accounts
    • Significant variances versus budget and prior year Non-compliance with credit agreement covenants

Regulatory or legal actions Independence: To maintain independence, your auditor is not allowed to prepare these documents. If your organization is unable to prepare the documents internally, then it may be prudent to hire outside an accountant (like Bookminders) to assist in the audit preparation.