Real Frauds Found in Not-for-Profits

Chapter 1Case 1: Misappropriation of Benefits

Learning objectives

• Determine how benefits might be misappropriated in a fictitious not-for-profit (NFP) entity.
• Use the fraud triangle in light of operations at offsite locations in a fictitious NFP.

Before we start

Fraud risks associated with benefit programs can sometimes be overlooked because there is typically no physical asset relating to the benefit. Program benefits provided by NFPs may be provided to beneficiaries that do not qualify for the benefit or do not qualify for the level of benefit provided include the following:

• Unemployment
• Food stamps
• Housing assistance
• Financial aid
• Healthcare
• Legal assistance
• Child care
• Membership
• Education

Indicators that program benefits might be misappropriated include the following:

• Copies of missing application forms and underlying supporting documentation
• Participant files lacking required information (for example, interview sheets, tax returns, and so on)
• Decentralized intake centers or centralized intake centers with little or no monitoring by management or supervisory personnel
• Inadequately trained or supervised program personnel
• Inadequate or ineffective controls over program assets
• Lack of periodic physical inventories of program assets

Background

Level Field Preschool is a large regional NFP organized under IRC Section 501 (c)(3), controlling and operating five preschool education and child care facilities in three counties. The population served by Level Field is primarily ...