Imagine the sinking feeling of opening your NFP's bank account and finding that money is missing.
Assuming 'it won’t happen to us' increases your NFP to internal fraud risk.
Maintaining clear responsibilities, strengthening financial controls, updating records and doing regular reviews can reduce risk, safeguard funding and stay focused on your NFP's purposes.
Case study - $10,000 goes missing
Anne recently took over from Ian as the new Treasurer for Greenfield FC, but things weren't quite adding up. She noticed some anomalies in the account, and when she looked at past records she could see Ian had changed how he had lodged their Business Activity Statement (BAS). As her investigation continued she found that Ian had:
- manipulated banking records and processed presumed fake invoices
- stopped using their BAS agent, reducing oversight, and
- pocketed cash from Greenfield's FC's canteen operation rather than banking it.
Ultimately Anne identified $10,000 in unsubstantiated transactions, and Ian was subsequently charged and convicted. Anne found that the previous poor reconciliation processes were a key factor that allowed Ian to carry out the theft. The club now has strict processes where both the treasurer and another executive official must both sign off on any transactions.
End of exampleProtecting your NFP’s finances
Strengthening financial controls is one of the most effective ways to reduce risk. Practical steps to reduce opportunities for misuse include:
- setting up dual authorisation for payments in your bank account settings so no single person controls the NFP’s spendings
- separating responsibilities for approving, processing and reconciling financial transactions
- verifying supplier bank details by calling suppliers directly, and
- regular committee meetings with documented minutes of decisions made for approving significant spending.
Grant funding
Grant funding is vital, but strict acquittal and reporting obligations often apply. Poor record‑keeping, weak financial controls, budget inaccuracies or late reporting may affect future grant opportunities.
Having clear responsibilities and consistent processes helps you with timely and accurate acquittals and strengthens the confidence of funders in your NFP.
Case study - no oversight
Spring into Life has been running since 2011. A recent goods and services tax (GST) audit by the ATO found the organisation had claimed over $4 million in input tax credits over a 9-year period.
This came as quite a shock to Spring into Life's committee! They discovered that these claims had been made by Siegfried, their director, without the NFP’s knowledge, who then withdrew the funds for their personal use.
The committee had no oversight of BAS lodgments or financial activities, and the misconduct went undetected for years. As the fraudulent claims were made in the NFP’s name, the organisation was responsible for repaying the amounts. Because they neglected ensuring they had good governance practices in place, their finances, reputation and sustainability are now strained. It's uncertain if Spring into Life will be able to keep operating.
End of exampleUnderstanding your accountability
Directors and committee members are a critical part of ensuring an NFP runs smoothly.
Strong oversight, good record keeping and clear processes help protect both your NFP and its responsible persons.
Once appointed, responsible persons should review the NFP’s governing documents to ensure you understand the organisation’s purpose and meet the responsibilities of your role, including overseeing the proper use of funds and the organisation’s financial position.
Keeping your authorised Australian business number (ABN) contacts up to date is both a legal requirement and critical to ensure only current representatives can access sensitive tax information and manage your NFP’s obligations.
Having outdated authorised contacts can lead to former employees or volunteers exploiting access to your ATO account, resulting in fraudulent activity.
Read more about updating your NFP’s associates and authorised contacts.
How to stay on track
For specific guidance on tax governance, use the NFP tax, super and registry responsibilities checklist.
You should regularly review how your NFP is running and make sure you have good processes in place to prevent fraud. This includes making sure you have clear visibility of your organisation's accounts, transactions, and permissions.
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