Fraud and Corruption Threats to NGOs and Nonprofits

Introduction
Combating fraud and corruption in nonprofit organizations (hereinafter alternatively “nonprofits”) and/or non-government organizations (NGOs) is an especially challenging enterprise because of the nefarious methods that are used and the corrupt practices that extent to the highest government levels that are endemic to many of the countries served by these organizations (Menzel, 2009).
Main Points to be Addressed
1. What types of fraudulent and corrupt practices are most common in nonprofit organizations? For example, although nonprofit organizations are vulnerable to many of the same types of fraudulent and corrupt practices experienced by other public and private sector organizations, asset misappropriations are by far the primary factor. In this regard, Zack (2009) emphasizes that in nonprofit organizations, “More than 80 percent of all reported frauds involve some form of asset misappropriation. And, to no great surprise, the asset most frequently misappropriated is cash” (p. 7). Despite cash being the most frequently misappropriated asset, other fraudulent practices can involve:
• Revenue and cash receipts (collections) schemes;
• Purchasing and cash disbursement schemes;
• Payroll and employee expense reporting schemes; and,
• Noncash asset misappropriations (Zack, 2009, p. 7).
Moreover, each of the foregoing practices can be perpetrated using different methods, with cash being the target in the first three and other resources such as inventory or equipment being targeted in the last (Zack, 2009).
2. What types of fraudulent and corrupt practices are most common in NGOs? Although it is reasonable to assume that NGOs are vulnerable to the foregoing types of asset misappropriations, many of the countries in which they operate also have widespread corruption (Menzel, 2009). This means that NGOs will likely suffer from unique combinations of fraud and corruption that will be especially difficult to overcome.
3. What are the most corrupt countries in the world? While corruption exists in virtually every country in the world, the ten countries rated as having the highest levels in 2016 by Transparency International’s Corruption Perceptions Index in descending order were as follows:
· Somalia;
· South Sudan;
· North Korea;
· Syria;
· Yemen;
· Sudan;
· Libya;
· Afghanistan;
· Guinea-Bissau;
· Venezuela (Sile, 2017).
These ratings suggest that nonprofits and NGOs operating in these and other highly corrupt countries are faced with some especially daunting threats of fraud and corruption that will require informed and committed leadership to address head-on.


References
Menzel, D. C. (2009, Summer). In pursuit of ethical governance: New approaches are emerging to fight corruption, including the use of measurement tools. The Public Manager, 38(2), 30-33.
Sile, A. W. (2017, January 24). These are the world’s most corrupt countries. CNBC. Retrieved from https://www.cnbc.com/2017/01/24/these-are-the-worlds-most-corrupt-countries.html.
Zack, G. M. (2009). Fraud and abuse in nonprofit organizations: A guide to prevention and detection. Hoboken, NJ: Wiley.