Buetow is in a position to know. Buetow is a forensic accountant based in Indianapolis and is a senior manager in the Risk Compliance Group at Crowe Horwath LLP. She came to Fort Wayne on Friday and presented a seminar on reducing the risk of fraud in nonprofit organizations. Her appearance was sponsored by the Fort Wayne Community Foundation.
Strengthening protections against fraud need not be a staggering new layer of overhead for nonprofits. “There are way to implement controls that are zero cost,” she said.
The most fundamental protection is to separate duties so that multiple people have roles in authorizing and checking expenditures. If one person authorizes payments, another writes checks and a third reconciles expenditures, much of the opportunity to commit easy frauds disappears.
Lacking these kinds of protections, nonprofits can be gutted by fraud. Buetow told the story of one organization's controller — she omitted the names of victims in all anecdotes — who created a ghost vendor then wrote checks for fictitious services to the imaginary vendor, which he pocketed.
How did he pull off 19 years of these frauds? He surrounded himself with a staff without advanced accounting skills. He maintained tight control of all financial activities and shared no responsibility. For years, he intimidated auditors and prevented full scrutiny of his organization's finances. In the end, he cost his employer $8.9 million, she said.
When the end came for his reign of deception, he had a file in his desk with the full details of the phony vendor and a record of all the checks he cut for his invention. He was so sure of himself, Buetow said, that “he didn't even bother to take it off premises.”
Buetow also told the more than 50 people at the seminar about some little-considered niches of an operation that can be ripe for fraud, such as postage and printing.
“Where's your postage machine? Is it in a secure area?” she asked. There's no punchline to that opening. Instead, there are many ways for dishonest employees to perpetrate frauds. One example she offered: An employee can overwrite postage labels for $37 instead of 37 cents, then get a refund from the U.S. Postal Service. If no scrutinizes details of postal spending, there's no chance to pick up a pattern of increasing mistake files.
Another example: printing. Buetow said that loose controls over printing expenditures mean that employees can use the budget or equipment for their own purposes — running a side business producing business cards or circulars, for example.