Real Frauds Found in Not-for-Profits

Solutions

Chapter 1

Suggested solutions to Case 1

1. Elements of the fraud triangle present include the following:
   • There is pressure on location directors to maintain or increase program quality with decreasing funds
   • Opportunity exists at the four offsite locations due to limited staff and oversight
   • Location directors believe the VPO doesn’t understand the difficulties they face, which could lead to rationalization of fraudulent transactions
2. Additional procedures that could have been in place to ensure compliance with program requirements, include the following:
   • Review of application files by someone at the administrative office
   • Confirmation of family income using external data bases
   • Surprise visits by the VPO to observe activity during drop off and pick up hours
   • Keep all family files at the administrative office, if in paper form, or limit access to electronic files
   • Periodic review of the waiting list activity and dates of activity
3. Missing or inadequate internal controls include the following:
   • Lacking controls at locations
   • Limited supervision of location directors who are in a position to perpetrate fraud due to limited or missing controls
   • Over-reliance by administrative office leadership on location directors
   • Lack of central oversight or control of program activities and transactions
4. Preliminary audit procedures might include the following:
   • Assessment of locations for potential material fraud
   • Review of controls at all locations
   • Inquiry of selected location personnel at ...