Real Frauds Found in Not-for-Profits

Chapter 4Case 4: Overtime Fraud

Learning objectives

• Identify how personnel policies and procedures in a fictitious not-for-profit entity (NFP) can be circumvented and lead to possible fraud or abuse.
• Determine the importance of understanding the environment in which a fictitious NFP entity operates and how it may affect the development and execution of personnel policies and procedures.

Before we start

In many NFP entities, salaries and benefits represent the major natural expense category. Employees of NFPs are often paid less than their counterparts in the private sector which may lead some employees to rationalize misappropriation of assets as compensation for their low salary levels. Additionally, work force reductions or reduced hours in times of limited resources may create an unstable work environment. These circumstances may pressure employees to work a second job while “on the clock” of their NFP employer. Low pay, reduced hours, and increased work load often create incentives for employees to misappropriate assets by recording time not actually worked for the benefit of their NFP employer.

Payroll and personnel controls, and therefore audit procedures, typically focus on the accuracy of the amounts paid (paid for actual hours worked at approved rate of pay) as indicated on the manual or electronic time records and documented in an employee’s personnel file. In some a NFPs employees may not work a standard 40-hour 8am to 5pm/Monday through Friday work week.

Controls ...