A feeling of dread sets in when nonprofit officials discover fraud or theft in their nonprofit.  Nonprofit organizations operate in a difficult financial environment; the added burden and betrayal of fraud, embezzlement or theft can trigger a panicked reaction from the decision makers. If your nonprofit is the victim of fraud, theft or embezzlement, here is a checklist to help manage the first few days and weeks after the discovery and verification of an unexpected  loss of funds due to criminal conduct.

1. 1. Lock down assets. For data and dollars, lock down assets by changing passwords and verifying access. Who has access to the account? Who are the authorized signators? For physical assets, change door locks, confirm that security systems have not been compromised, and account for all keys and key cards.
   2. Rotate duties. Most nonprofit employees are cross-trained by necessity due to staff needing to cover illness and vacation time for other employees.  Immediately rotate normal duties to cut off anyone with “guilty access.”
   3. Change procedures and increase controls. Require two signatures on all checks, put an alert at the bank, survey the bank for all account activity, and immediately reconcile all accounts with the bank. Take this opportunity to train a board member in the nonprofit’s financial procedures, and then add that person to income controls like counting cash, processing checks, and opening mail.
   4. Contact your accountant. If you don’t have one, get one immediately.
      • Request immediate supervision and review of accounts to confirm fraud, theft or embezzlement.
      • Ask for audit of previous activities to confirm fraud and identify source or key vulnerabilities.
      • Create a distinction between “contaminated” financial information and “clean” financial information.
      • Ask for assistance in “starting over” for accounting procedures to recalibrate income and expense controls
   5. Consult your attorney for legal guidance and ramifications of suspected fraud.

1. Manage assets.  Work with your accountant to address vulnerabilities and implement new or revised controls to prevent future fraud.
2. Confront the perpetrator.
   1. If employee:
      • Review employee manual or contract for procedures for suspected theft and follow termination guidelines
      • If no manual or contract, Executive Committee should determine course of action, like immediate termination, suspension, reporting to authorities
      • Confront employee with proof and consequences.  If termination, provide an escort to clean out desk, turn in keys and leave the building.
   2. If Officer or Board Member (or the significant other of Officer or Board Member):
      • Consult your bylaws for involuntary removal of officer or board member and follow guidelines, if necessary.
      • Executive Committee or Board President should meet privately with officer or board member, provide evidence of fraud and request resignation
      • If perpetrator is the significant other of an Officer or Board Member, resignation should be requested for the good of the nonprofit.
   3. If Volunteer, donor, or other stakeholder:
      • Confront the perpetrator with at least two representatives present.
      • Formally sever ties. Escort out of building, ask to not come back, establish “persona non grata” status.
3. Contact police to report criminal activity. Cooperate in investigation and provide information but consider how you will protect donor  and employee privacy to the extent not involved with the crime.