Whistleblowing allegations against President of the NGO

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Sometimes the CFAPs are called to work on the forensic accounting projects in the NGO sector. While i was talking to a friend who is often called to investigate the allegations and frauds in the NGO sector shared a couple of instances of his investigative experiences. Here are few learnings from the forensic audits in the NGO sector.

Case study of Allegations on President of NGO

A large community driven NGO received a whistleblower letter regarding its President’s involvement in potential fraudulent activity. Because allegations against the President could have disastrous effects on donations received by the NGO, it decided to hire a forensic accountant to verify the merit of the allegations.

Forensic accountants, interviewed members of the board of trustees, the CFO, and individuals who worked closely with the President. They gathered and analyzed documents from the company as well as publicly available information. Upon review of  credit card statements, forensic accountants observed potential abuse of the NGO account by the President, including personal vacations, meals and entertainment. Forensic Accountants noted there were no controls over the spending of the President and no one reviewed the President’s credit card statements. Upon further research it was discovered that unbeknownst to the board of trustees, the President was receiving a salary from an associated NGO for unnamed services.

Investigation into spending of the NGO, as approved by the President, also reflected a series of contracts entered into with friends and associates who provided services to the NGO for inflated prices. Analysis of the Forensic Accountants brought to light these serious issues and allowed the board of trustees to assess and handle the situation. It helped the Board to restructure the composition of the board by replacing the existing President with new one.

Case Study of NGOs using credit card details for Fraud

In a simple fraud it was observed that a NGO registered under the various Income Tax acts was involved in the purchase of the stolen credit card data was using the same for the making donation to their own trust. The credit card holders were based in different countries. NGO trustees arrested for theft of credit card data; cops say accused used data to transfer funds to trust account through e-commerce gateway; scam came to light when bank contacted ‘donors’ for service charges.

Case study of classifying transfer of money from NGO to another NGO as embezzlement

Principal recipient of a big grant appointed the forensic accountants on the whistle-blower complaint which brought jitters to the management of the donor. The claim of fraud was investigated, books proved the transfers were made to another NGO. However, there are four elements of fraud. There has to be a misrepresentation, the misrepresentation needs to be relied upon,there is a need to have the damage caused due to this misrepresentation. Forensic Accountants found all the money was parked in the bank accounts and found no intent to defraud as the money was not used for personal benefits. Sometimes tax planning provides the room for suspicions.