Risk Insider: Greg Bangs

When Do-Gooders Do Wrong: Fraud at Nonprofits

By: | May 21, 2015 • 2 min read
Gregory W. Bangs is senior vice president, crime regional leader for North America at AXA XL, a division of AXA XL. Over the last 30 years, he’s been underwriting insurance and developing new products in the U.S., UK, Hong Kong and France. He can be reached at [email protected]

Recently, a former Emory University employee pleaded guilty to wire fraud after embezzling more than $300,000 in tuition and fees paid by students. She instructed students to wire their tuition into her own Paypal account.

According to her attorney, “Based on the circumstances at her life at the time, she made some poor choices.”

From universities to religious groups to a host of local, national and global charities, nonprofit organizations are full of honest, hard-working people dedicated to improving society in some way. Unfortunately, even the most well-meaning individuals can find themselves in situations — faced with financial troubles or other personal circumstances — that tempt them to act inappropriately. Before they know it, they find themselves in financial hot water and, in turn, their nonprofit employer is in it as well.

According to the latest “Report to the Nations on Occupational Fraud and Abuse, 2014 Global Fraud Study,” by the Association of Certified Fraud Examiners, not-for-profit organizations continue to make up more than 10 percent of frauds committed.

While a for-profit organization may see stolen money take a bite out of its profits, a charitable organization may see even greater financial and reputational damage when money intended for doing good goes elsewhere.

That’s why the temptation to cover up financial problems can be particularly attractive for nonprofits. For organizations that rely on charitable giving, the notion that they are not safeguarding donations more carefully can put a dent in the future donation stream.

It’s also a bit of a double-edged sword for nonprofits. Putting fraud controls in place may entail some administrative costs and many donors evaluate their giving decisions based on nonprofits’ cost allocations, leaning towards organizations that show more of a donor’s dollar goes directly to their cause, not administrative costs.

While a for-profit organization may see stolen money take a bite out of its profits, a charitable organization may see even greater financial and reputational damage when money intended for doing good goes elsewhere.

In the long-run however, internal processes and protocols can prove to be a wise investment that will assure that money given to a cause is allocated to do the good it is intended, not to get swiped by employees.

Like any for profit organization, not-for-profits need to maintain a strong system of internal controls, among them:

  • Segregate duties. This assures that one employee cannot perform a complete financial transaction from end-to-end without involving someone along the way.
  • Background checks. For a nominal cost, nonprofits can make sure that employees have not already had some past issues that would affect their judgment with the organization’s money
  • Invest in technology. Today software accounting packages can raise a variety of red flags such as repetitive withdrawals or employee expense reimbursements.
  • Identify the role of board members for responding to or investigating allegations of fraud. Many seasoned financial and business professionals serve on charitable organization’s boards of directors and can be valuable sources for setting up fraud control procedures.
  • Commit to an independent audit every 4-5 years. Larger charitable organizations may commit to independent audits more regularly as they are often required in order to receive federal funding. Smaller organizations can seek more affordable methods of evaluating the nonprofit’s financial positions, such as a review of certified financial statements.
  • Prosecute offenders. Again, many nonprofits can be reluctant to go public with fraud cases because of its potential effect on donors. Not acting however, can be equally detrimental, sending a signal that employees who dip into an organization’s bank account may just walk away with a slap on the wrist.

More from Risk & Insurance

More from Risk & Insurance

4 Companies That Rocked It by Treating Injured Workers as Equals; Not Adversaries

The 2018 Teddy Award winners built their programs around people, not claims, and offer proof that a worker-centric approach is a smarter way to operate.
By: | October 30, 2018 • 3 min read

Across the workers’ compensation industry, the concept of a worker advocacy model has been around for a while, but has only seen notable adoption in recent years.

Even among those not adopting a formal advocacy approach, mindsets are shifting. Formerly claims-centric programs are becoming worker-centric and it’s a win all around: better outcomes; greater productivity; safer, healthier employees and a stronger bottom line.

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That’s what you’ll see in this month’s issue of Risk & Insurance® when you read the profiles of the four recipients of the 2018 Theodore Roosevelt Workers’ Compensation and Disability Management Award, sponsored by PMA Companies. These four programs put workers front and center in everything they do.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top,” said Steve Legg, director of risk management for Starbucks.

Starbucks put claims reporting in the hands of its partners, an exemplary act of trust. The coffee company also put itself in workers’ shoes to identify and remove points of friction.

That led to a call center run by Starbucks’ TPA and a dedicated telephonic case management team so that partners can speak to a live person without the frustration of ‘phone tag’ and unanswered questions.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top.” — Steve Legg, director of risk management, Starbucks

Starbucks also implemented direct deposit for lost-time pay, eliminating stressful wait times for injured partners, and allowing them to focus on healing.

For Starbucks, as for all of the 2018 Teddy Award winners, the approach is netting measurable results. With higher partner satisfaction, it has seen a 50 percent decrease in litigation.

Teddy winner Main Line Health (MLH) adopted worker advocacy in a way that goes far beyond claims.

Employees who identify and report safety hazards can take credit for their actions by sending out a formal “Employee Safety Message” to nearly 11,000 mailboxes across the organization.

“The recognition is pretty cool,” said Steve Besack, system director, claims management and workers’ compensation for the health system.

MLH also takes a non-adversarial approach to workers with repeat injuries, seeing them as a resource for identifying areas of improvement.

“When you look at ‘repeat offenders’ in an unconventional way, they’re a great asset to the program, not a liability,” said Mike Miller, manager, workers’ compensation and employee safety for MLH.

Teddy winner Monmouth County, N.J. utilizes high-tech motion capture technology to reduce the chance of placing new hires in jobs that are likely to hurt them.

Monmouth County also adopted numerous wellness initiatives that help workers manage their weight and improve their wellbeing overall.

“You should see the looks on their faces when their cholesterol is down, they’ve lost weight and their blood sugar is better. We’ve had people lose 30 and 40 pounds,” said William McGuane, the county’s manager of benefits and workers’ compensation.

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Do these sound like minor program elements? The math says otherwise: Claims severity has plunged from $5.5 million in 2009 to $1.3 million in 2017.

At the University of Pennsylvania, putting workers first means getting out from behind the desk and finding out what each one of them is tasked with, day in, day out — and looking for ways to make each of those tasks safer.

Regular observations across the sprawling campus have resulted in a phenomenal number of process and equipment changes that seem simple on their own, but in combination have created a substantially safer, healthier campus and improved employee morale.

UPenn’s workers’ comp costs, in the seven-digit figures in 2009, have been virtually cut in half.

Risk & Insurance® is proud to honor the work of these four organizations. We hope their stories inspire other organizations to be true partners with the employees they depend on. &

Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]