Nonprofit embezzlement cases: examples to learn from

Embezzlement represents a betrayal at any organization, but for a mission-driven one, the theft of funds by an insider can hit extra hard. Lost money may not be fully recoverable, and with it disappears the potential to help your community — and the trust among colleagues and with volunteers, donors and members of the public.

Any nonprofit can find itself victimized, and, while you may be convinced your nonprofit has adequate internal controls in place, be aware that new types of embezzlement schemes could emerge at any time. It’s worthwhile for your board to discuss top nonprofit embezzlement cases of the past and recent cases to learn how to avoid similar situations at your organization.

Doug White, a nonprofit governance expert, says this about the impact of embezzlement on nonprofits, “Embezzlement in a nonprofit organization not only drains financial resources but also erodes trust and damages the organization’s reputation, making it harder to fulfill its mission.”

“Embezzlement in a nonprofit organization not only drains financial resources but also erodes trust and damages the organization’s reputation, making it harder to fulfill its mission.” – Doug White, nonprofit governance expert

Boards should evaluate the forms embezzlement can take and use research and technology to shore up their organizations’ fraud prevention strategies.

What does the research on nonprofit embezzlement cases say?

It’s essential to keep the risk of nonprofit embezzlement on your board’s radar. One way to open your board’s eyes to the risks of embezzlement is to share the research around nonprofit embezzlement cases. Overall, nonprofit organizations implement far fewer internal controls than for-profit organizations.

According to the 2020 update to Occupational Fraud: A Report to the Nations, the top three causes of nonprofit embezzlement are a lack of internal controls, lack of oversight of existing internal controls and overrides of existing internal controls.

While the 2024 update noted that nonprofit organizations represented the smallest percentage of cases in the study (10%) and had the lowest median loss of $76,000, it also included the following observations:

• The presence of 18 anti-fraud controls was associated with both faster detection and lower losses. Additionally, four controls — surprise audits, financial statement audits, hotlines and proactive data analysis — were associated with at least a 50% reduction in both fraud loss and duration.
• Nonprofits have the lowest implementation rate of fraud awareness training, and organizations that didn’t conduct fraud awareness training lost nearly twice as much as those that did.
• Nonprofit organizations that provided fraud awareness training uncovered frauds more than 2.5 times faster than organizations that did not.
• Additionally, nonprofit organizations received fines from oversight agencies most frequently, while publicly traded companies were the least likely to receive a fine.

These statistics demonstrate that nonprofits could be doing more to protect themselves and that, while underrepresented in cases, may face higher rates of penalties. A good first step is to bring embezzlement examples into the boardroom and discuss them openly.

A security breach or cyberattack damages stakeholder trust. It raises concerns in the minds of donors, beneficiaries, regulators, employees and volunteers that their data and your operations are no longer safe, and that they may no longer be able to depend on you to carry out your mission. Stay a step ahead of cyberthreats with a security assessment to check where your organization is vulnerable. Download our Security Assessment Checklist today with key questions to ask and next steps for moving your assessment — and overall security — forward.

___________________________________________________________

Different types of embezzlement nonprofits may encounter

Understanding the types of embezzlement can help you spot trouble early and protect your organization. Here are some common types nonprofits might face:

• Financial fraud such as skimming, when cash is stolen before it’s recorded in the books. Imagine a fundraiser where someone pockets cash donations. Or payroll fraud where an insider might manipulate the payroll system. Think phantom employees or unauthorized raises. Or billing schemes where fake invoices get submitted for payment. The nonprofit ends up paying for goods or services that were never delivered.
• Personal gain such as expense reimbursement fraud, where employees submit fake or inflated expense reports. They get reimbursed for personal expenses or things that never happened. Or asset misappropriation, where non cash assets like inventory or equipment are stolen. Someone might take laptops, phones or other valuable items.
• Ponzi scheme donations, where a large donation turns out to be part of an investment fraud. Such a donation can severely impact a nonprofit by causing financial loss if the funds need to be returned, damaging its reputation, leading to legal issues and disrupting its operations.

Understanding these types of embezzlement helps you stay vigilant and avoid a crisis. Implement strong internal controls and regular audits to protect your nonprofit. It’s not just about the money; it’s about trust and the ability to serve your mission.

Examples of nonprofit embezzlement cases

No one could forget the Enron scandal, where one of the largest embezzlement cases in the world resulted in $11 billion in losses due to corporate abuse and accounting fraud. Shareholders lost $74 billion of their money. While this is an example of a top corporate embezzlement case, it stands as a notable lesson for nonprofits that embezzlement schemes have the potential to loom large and stand long without detection.

Let’s look at eight nonprofit embezzlement cases to understand better the types of issues nonprofit boards are facing.

1. Arts center scheme

An arts center lost $1.48 million over five years in a scheme by a low-level accounts receivable employee. The employee created fake companies, assigned vendor numbers to them and then submitted invoices for work never performed.

2. National charitable organization fraud

Despite enjoying an attractive salary and benefits package that totaled over $460,000, a CEO of a large charitable organization embezzled $1.2 million of the nonprofit’s funds. He was convicted of 71 counts of fraud, conspiracy, tax evasion and money laundering. An Investigation revealed that he had spent the money to support a lavish lifestyle and to impress a teenage mistress.

3. Washington, D.C., charity fraud

A nonprofit lost $500,000 when it was discovered that its former chief financial officer wrote fraudulent checks to herself and forged her supervisor’s signature on them. Her crime was uncovered when she resigned from her position and the new CFO discovered the missing checks.

4. Embezzlement of a nonprofit that supports children and families

The interim director and director of political affairs embezzled over $60,000 from this nonprofit that supports children and families. The employee made 83 personal transactions using the nonprofit’s credit card.

5. Charter school embezzlement

A former senior advisor to a former U.S. president allegedly embezzled over $200,000 from a charter school network. The nonprofit consists of a network of charter schools the senior advisor founded in 2005. The man is being charged with wire fraud, money laundering and making a false statement to a bank.

6. Two different nonprofits victimized by of embezzlement by the same individual

An employee embezzled $1.4 million from a nonprofit. The woman made over 350 unauthorized wire transfers and issued over 250 checks to herself, her husband and several of her creditors. She was arrested and placed on a pretrial release with the condition that she refrain from illegal activities. She was undeterred and used a different name to secure employment with a different nonprofit, failing to disclose her prior indictment. She stole $57,000 from the second nonprofit during her pretrial release period.

7. Labor union embezzlement

Labor unions fall under nonprofit status, and they’re also at risk of embezzlement. A benefits manager stole over $42 million from the union’s bank accounts for personal use. While the woman enjoyed a lavish lifestyle, travel on private jets and expensive jewelry, workers discovered their retirement accounts were empty, leaving them without income for retirement.

8. Medical research association embezzlement

An administrative assistant working at this nonprofit admitted to embezzling over $5.1 million in a scheme that went unnoticed for eight years. The employee had access to critical financial systems, and she created fake invoices in the names of legitimate groups. She approved the invoices for payment, and when the checks were ready, she cashed them herself.

While many of these schemes have been successful in the past, your board should be on alert for emerging technology-related embezzlement schemes such as these:

• IT personnel who electronically skim small amounts off sales and transfer the funds into their own accounts.
• IT personnel who insert logic bomb codes into nonprofit computer systems to automatically transfer money into their own accounts at regular intervals.
• IT personnel who insert trojan horse programs into your nonprofit’s computer system, enabling it to transfer money to themselves.

Ultimately, today’s nonprofit boards must take a diligent, proactive approach to prevent embezzlement. Quality auditing is critical. However, be aware that the auditor’s role is to detect weak internal controls. Your nonprofit board is responsible for implementing internal controls to prevent becoming an example of nonprofit embezzlement that harms your nonprofit’s reputation.

How to use technology to support anti-embezzlement strategies

By implementing anti-fraud controls, nonprofits can reduce the risk of being victimized, but where do you begin? A board management solution like BoardEffect has features that seamlessly support these efforts:

• Training. Fraud awareness training increases the speed at which fraudulent behavior is uncovered. BoardEffect’s dashboard and document library can be used to create and offer consistent training for every level of the organization.
• Documents and automated workflows. Codes of conduct are the most common anti-fraud control. Contributors can develop the policy with automated workflows, with notifications alerting each participant when they need to review. The document library provides a single source of truth for official documents like codes of conduct.
• Secure, private workrooms. Internal audit teams and other stakeholders can conduct business — including regular reviews and investigations — with full-featured online meetings.

Embezzlement can happen to any nonprofit, but there are effective strategies to prevent and mitigate it. With BoardEffect, nonprofit boards and staff can establish the right protocols to support vigilance. We at Diligent offer solutions you can use to protect your organization, and keep your focus on what matters — your mission.