What’s the urgency?
Fraud in U.S. nonprofit organizations remains a significant concern, with estimated annual losses approximating 5% of total revenue, translating to billions of dollars sector-wide. While precise figures segmented by organization size and locale are limited, available data from the Association of Certified Fraud Examiners (ACFE) and other studies provide insights into the prevalence and causes of fraud within the nonprofit sector.
Estimated Fraud Losses in US Nonprofits
- Median Loss per Incident: Approximately $75,000
- Average Loss per Incident: Approximately $639,000
Primary Causes of Fraud in Nonprofits
- The following are the predominant causes of fraud in nonprofit organizations, along with their respective prevalence:
- Corruption: 41%
- Billing Fraud: 30%
- Expense Reimbursement Fraud: 23%
- Cash on Hand Misappropriation: 17%
- Skimming: 15%
- Check and Payment Tampering: 14%
- Cash Larceny: 12%
- Payroll Fraud: 12%
- Financial Statement Fraud: 11%
Percentage of Occupational Fraud Cases Involving Nonprofits: Approximately 9%
Fraud in the nonprofit sector is a persistent and under-reported problem, often due to a lack of internal controls, limited oversight, and reputational concerns. While exact figures vary by source and methodology, here’s a consolidated professional estimate based on recent studies: Data below is derived from the ACFE and sector-specific audits.
| Cause of Fraud | Description | % of Cases | Estimated Number of Cases (based on ACFE’s 2,110 case sample, ~9% from nonprofits) |
| Lack of Internal Controls | Missing checks and balances; poor segregation of duties | 30% | ~57 cases |
| Override of Existing Controls | Executives or insiders bypass existing controls | 18% | ~34 cases |
| Poor Tone at the Top | Leadership fails to model ethical behavior | 10% | ~19 cases |
| Lack of Management Review | Financials not reviewed routinely by leadership | 9% | ~17 cases |
| Outsourcing Risks | Overreliance on third parties for critical operations like payroll or accounting | 8% | ~15 cases |
| Limited Board Oversight | Board does not provide effective financial or operational oversight | 7% | ~13 cases |
| Complex Grant Reporting Requirements | Fraud in misreporting grant usage or double-dipping | 6% | ~11 cases |
| Conflict of Interest / Related-Party Transactions | Undisclosed transactions with insiders or affiliates | 5% | ~10 cases |
| IT and Cybersecurity Weaknesses | Fraud stemming from phishing, ransomware, or poor data access controls | 4% | ~8 cases |
| Other Causes | Includes collusion with vendors, fake donors, etc. | 3% | ~6 cases |
Fraud in U.S. nonprofit organizations poses a significant risk, both financially and reputationally. While specific data segmented by organization size and locale is limited, the prevalence of fraud across various types of nonprofits and regions underscores the importance of robust internal controls, regular audits, and a culture of transparency. Implementing comprehensive fraud prevention and detection strategies is essential to safeguard assets and maintain public trust.
Nonprofit status should never be a license for financial exploitation. If you require further information on developing fraud prevention measures tailored to your organization’s size and operations, please contact us at our email address below.