Page 285 - Washington Nonprofit Handbook 2018 Edition

• Opportunity: The person committing fraud must have the
opportunity or access to resources. For example: a volunteer or
employee that has exclusive access to assets and information may
believe a fraud can be committed and successfully concealed.
Opportunity is the one factor that the nonprofit organization can
control.

c. What Can A Nonprofit Organization Do To Prevent Fraud?

By establishing practices and procedures called internal controls, nonprofits
can remove perceived opportunities for employees or volunteers to commit fraud.
Effective internal control systems have the additional benefit of increasing the
efficiency of operations; safeguarding assets against loss and unauthorized use or
disposition; improving reliable financial reporting, and ensuring compliance with
applicable laws and regulations.

d. Components of a Successful Internal Control Structure

1. Control Environment: The control environment is the
foundation of standards, processes, and structures that enable an
organization to carry out internal controls. The Board of Directors and senior
management are responsible for establishing the tone of the control
environment from the top; by modeling and enforcing expected standards of
conduct, they create a culture of transparency and integrity.

A. Principles to keep in mind when creating a control environment

• The control environment demonstrates commitment to high
standards, integrity and ethical values;

• The Board of Directors exercises oversight responsibility over the
financials of the organization;

• The Board of Directors and senior management establishes structure,
authority, and responsibility;

• The Board of Directors and senior management is committed to the
competence of personnel;

• The Board of Directors and senior management enforces
accountability for practices and procedures relating to the
management and oversight of financial and accounting systems;

WASHINGTON NONPROFIT HANDBOOK -274- 2018