Tuesday, December 26, 2006

NONPROFIT IMAGE PROBLEM: FLAWS IN FRAUD DETECTION

Nonprofit Image Problem?
by pam ashlund


Life has a way of being just plain embarrassing sometimes. I've been in accounting since the '80's. As a manager I take my job and it's concomitant responsibilities very seriously. I work hard to achieve due diligence, as any good financial manager would. Along those lines, I keep up on the body of work on the subject of Fraud Detection.

Here's the rub: Call it vanity, call it a mid-life crisis, call it treating myself to one big splurge.. I bought a sports car this summer. Oh the shame. I love this car so much true, but how embarrassing in the nonprofit world. I know I should be driving a Prius d--n it.

I document my love-hate relationship with this car on my blog: Boxster Heaven

How do these two topics converge? The IT Compliance Institute (the self-proclaimed "Global Authority for IT Compliance Information") has a great article called Best Practices: Ten Tips for Fighting Corporate Fraud. And #7 on that list is:

Look for behavior changes and ostentatious acquisitions
Is someone driving a fancy car or living in an opulent house that they reasonably should not be able to afford? Are they suddenly taking expensive trips? Has their lifestyle changed inexplicably and dramatically? You’d think fraud perpetrators would take pains to hide their new wealth, but many don't work that way, notes Summerford. “The fraud remains hidden, but once they have the money, they spend it,” he states.

My boss laughs at me, but I keep qualifying my purchase with "it's used" or "it's the same price as my Outlander was!" or "the bank owns it not me" or "the boxster is the poor mans porsche!". All 100% true and all because I am so darn defensive because of the common wisdom of "driving a fancy car is a warning sign of fraud". I even "disclosed" it to our auditors preemptively. I felt kind of lame.

The flaw in the logic is this, some people work hard for what they earn, they earn a fair market price (or below), and they decide what they use that salary for. Scary and controversial I know. I always was a rebel. Maybe a vapid YUPPIE rebel, but who's counting?

What are the ten tips? Read the full article at: Ten Tips for Fighting Corporate Fraud
  • Set up a hotline for whistleblowers and tipsters
  • Educate frontline managers
  • Fortify wisely
  • Use a broad approach
  • Look for the triangle
  • Look for anomalies
  • Look for behavior changes and ostentatious acquisitions
  • Monitor e-mail
  • Follow up
  • Be brave

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