How to Spot Financial Fraud in a Non-Profit: The Warning Signs

Non-Profit - Complete Controller

non-profit organization is a non-business entity in many countries. The Internal Revenue System in America grants non-profit organizations a status of the business that is exempt from tax.

Non-profits are established for a cause. If a non-profit generates revenue, it is further used for the same cause. Non-profits pay no income tax on the donations they receive or any money they make through fundraising movements.

We generally believe and hope that only honest volunteers work in non-profits to raise funds for a cause. We want to believe that there are always hardworking, genuine people managing the tasks in non-profits. It is disheartening to think that dishonest people are managing the bookkeeping tasks in non-profits because such organizations are made to serve humanely causes. The reality is different. Many non-profit organizations drive funds and donations to benefit the causes for which they have been made. If left unchecked, a considerable portion of the funds raised in a non-profit organization is susceptible to theft, investment fraud, embezzlement, and other unauthorized use. Check out America's Best Bookkeepers

Financial Data is not Up to Date

A non-profit should be audit-ready at all times. Suppose the financial data is not up to date, and the organization is not audit-ready. In that case, this is an indication of possible discrepancies going on in the organization’s bookkeeping. Accounting statements must match. Financial statements must be related to the balance sheet and cash flow statements. You can easily spot a financial fraud if the accounting statements do not match or others are not balanced.

Cash Not Shown on Income Statement

Cash is present but not shown on the income sheet. If money is present for funding of a non-profit, it must be present on the income statement and balance sheets. There should be a monthly check of all bookkeeping and accounting statements. This is a warning sign of fraud in a non-profit.

Bullying Behavior of Management

If a manager is bullying and not responding to queries raised, the management is corrupt. Managers who are involved in frauds often have an intimidating attitude to mask the frauds happening in non-profits. Dishonest people can somehow reach the top of management in a non-profit, and they usually avoid others by showing intimidation. Bullying conduct includes shouting, offensiveness, and denial to reply to genuine questions.

Budget Cutbacks

If the same non-profit with the same funding starts cutting back the budget by decreasing its paid workforce and starts relying more on volunteer work, unhappy workers may get involved in fraud to meet their expenses.  This seems far-fetched; however, it happens more than we’d like to admit. Check out America's Best Bookkeepers

High Turnover among Staff

If employees of the non-profit resign frequently, then the reason behind this can be frauds going on in the non-profit. This could be a sign that they are unhappy with the current practices going on in the non-profit, which includes fraud.

Too Much Emphasis on Short-Term Fundraising Goals 

If a non-profit that receives huge donations focused on short-term fundraising goals between fundraising events, this may indicate fraud. Management may be trying to raise small funds to cover up their fraudulent behavior.

Non-profit is Working in Poorly Controlled Areas

There are more chances of fraud if a non-profit is working in remote areas or less control of bookkeeping and financial information.

Change in Lifestyle of an Employee

If a staff member, especially one dealing with bookkeeping or at the managerial position, shows a sudden change in their behavior, it may indicate fraudulent practices. A lavish lifestyle without the means to afford it or offended behavior must be checked closely. Check out America's Best Bookkeepers

Checks Bounce Back Frequently

The directors know there is cash present in the account of a non-profit, but checks frequently bounce back.  This may very well indicate fraud. An audit must be conducted to ensure transparency.

No Frequent Audits

If audits are not done frequently, this may mean that someone is trying to hide frauds, theft, or embezzlement.


A non-profit organization is a fraud and theft source if the accounting and bookkeeping data is not up to date and is left unchecked. It’s hard to believe, but criminals come and join the non-profit for their gains. There should be a clear and transparent system in any non-profit to minimize fraud. The above warning signs help spot financial fraud in a non-profit.

Check out America's Best Bookkeepers About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks™️ file, critical financial documents, and back-office tools in an efficient and secure environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity. Check out America's Best Bookkeepers