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Media scrutiny of IRS Form 990 has revealed extensive fraud at some of the nation’s largest nonprofits, and inadequate compliance disclosures.

Washington Post Article Reveals Extensive Nonprofit Fraud and Inadequate Form 990 Disclosures

  • 11/8/2013

A recent front-page article in The Washington Post titled Inside the Hidden World of Thefts, Scams, and Phantom Purchases at the Nation’s Nonprofits revealed that between 2008 and 2012 more than 1,000 nonprofit organizations reported that they “had discovered a ‘significant diversion’ of assets….attributed to theft, investment fraud, embezzlement, and other unauthorized uses of funds.” The Form 990 disclosures from just 10 of the largest nonprofits showed fraudulent activity resulting in potentially more than $500 million in losses.

The article has sparked considerable discussion and several follow-up stories focusing on the extent of nonprofit fraud and the inadequacy of many Form 990 disclosures. The Post reported that many of the organizations it studied did not fully “explain the nature of the diversion, amounts or property involved, corrective actions taken to address the matter, and pertinent circumstances” as directed by the instructions for Form 990.

“This is a timely reminder that every nonprofit needs to carefully review and monitor its financial controls and governance structure to mitigate risks,” says David Trimner, a nonprofit principal with CliftonLarsonAllen. “Form 990 is a public disclosure document subject to intense scrutiny not only by the IRS, but also a wider public audience including the media. Negative publicity can damage the reputation of an organization for years, and it is impossible to predict where the next story like this will come from or what area of the 990 it will focus on.”

Trimner further suggests that nonprofits take the following steps to reduce the risk of fraud:

  • Educate employees about how to recognize and prevent fraud
  • Provide a way for individuals to anonymously report suspicious activities
  • Develop or refine policies for dealing with fraud and other financial misconduct, and for informing all constituencies of actions taken as a result

How we can help

CliftonLarsonAllen’s nonprofit professionals are ready to assist with a complete assessment of internal controls and help implement fraud prevention measures.