Watch Your Credit Cards! Expense Reimbursement Fraud at a Not-For-Profit Organization

Frequently, internal controls at not-for-profit organizations depend primarily on the integrity of their employees.  Sometimes these employees lose sight of their integrity, and fraud can occur in spite of the organization’s mission. 

One assignment we completed for a not-for-profit organization involved a case where the organization suspected that an executive had been conducting an expense reimbursement scheme, including significant misuse of the organization’s credit cards. 

Perpetrators of expense reimbursement schemes produce false documents that cause the victim organization to unwittingly make a fraudulent disbursement. 

The four main types of expense reimbursement fraud schemes are:

• Mischaracterized expenses
• Overstated expenses
• Fictitious expenses
• Multiple reimbursements

So, what happened with our not-for-profit organization that suspected its executive of an expense reimbursement fraud scheme?

As a result of the investigation of the executive’s schemes, the executive left the organization and paid back thousands of dollars to the organization in settlement of potential claims.  During our investigation, we discovered numerous issues regarding the organization’s policies, procedures and financial activity - in addition to the fraudulent expense reimbursement issues.  

Basic recommendations to help prevent expense reimbursement fraud at your organization include:

• Develop formal written policies and procedures regarding credit card use and spending limits
• Consider use of purchasing cards (P-cards) that allows limits to purchase amounts and restrict where purchases can be made
• Expense reports should require supporting documentation and explanation of the expense
• Segregate duties for cash deposits and recording of cash and accounts payable processing and disbursements

If you have any questions regarding potential fraud schemes or internal controls at your not-for-profit organization, please contact the Business Advisory group at Schneider Downs.