Sometimes, fraud can happen despite having solid financial management practices and internal controls in place. Sadly, many NGOs have been the victims of fraud, on either a large or small scale. Fraud is the act of intentionally deceiving someone in order to gain an unfair or illegal advantage (financial, political or otherwise).
It is very important for NGOs to prepare in advance for potential fraud, by having a written policy or procedure.
Examples of Fraud
Alongside theft, some common types of fraud include:
- bribes paid to NGO staff by suppliers, partners or beneficiaries
- supplies sold for personal gain
- unauthorized personal use of assets (e.g. telephones, vehicles)
- staff being paid inflated expenses (supported by false receipts)
- the same project being funded by two different donors
- resources given to “ghost” staff or beneficiaries, who do not really exist
Dealing with Fraud
An NGO’s fraud policy should cover:
- how you expect to deter fraud
- how allegations can be reported (including “whistle-blowing”)
- how you will respond to allegations of fraud
- how allegations will be investigated
- how you will respond to different types of fraud
Finally, staff should know about the policy.
All allegations of fraud must be treated seriously, even if there is no suspicion of malicious intent. Allegations should be responded to as soon as possible, usually with an investigation.
You should record the details of each fraud and the actions you take in response in a fraud register. This is an important document for monitoring fraud and learning how to strengthen controls in the future.