Is the Non-Profit World Teeming With Fraud?

When we recently wrote a column suggesting that philanthropies be run more like businesses, one factor we didn’t look into — but perhaps should have — was fraud.

According to a Times report by Stephanie Strom, fraud and embezzlement in the non-profit sector account for a loss of $40 billion a year, or roughly 13 percent of philanthropic giving.

The article is based on a report (gated) recently published in the Nonprofit and Voluntary Sector Quarterly. Strom’s article peaked at about No. 6 on While Strom’s article hasn’t hit the Times’s “most e-mailed list“; I am guessing that just about everyone in the non-profit world has read it by now, and are readying their replies to anxious donors.

Thirteen percent gone to fraud! That’s about the same loss experienced by the Bagel Man — and he didn’t even have anyone watching the till.

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  1. Karl Forister says:

    Including religious organization, based on my life’s journey, 13% is much too low! Cash-handling nonprofits, in general, do not have a reputation for practicing basic, fundamental, “due diligence” by performing pre-employment background screening and following that with scheduled post-employment Credit Reports and criminal records checks. Those that do the minimum, their own county’s criminal records search, ignoring the remainder of the nation and federal courts’s records, plus searches for civil court records and credit reports, cast a microscopic “net” that will rarely identify any jail bird applicants who simply migrate to another state when sentence is served and look for another “soft” nonprofit. Criminals are attracted to nonprofits in general because they know that the odds are in their favor that the nonprofit will not spend the money to do a thorough background check in full compliance with Fair Credit Reporting Act recommended protocols.

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  2. Dr. Jean-Christophe Paquin says:

    The last comment about Rwanda couldn’t have been more accurate, having lived and worked there, as well as in Swaziland. In fact, 13 % appears rather low as a percentage. Two things come to mind immediately: poverty, indeed, and what is referred to as neo-colonialism. Changing the way aid receivers view donors is a daunting task; we’ve too often heard the saying “give them a fish a they will have food for a day; teach them how to fish and they will feed themselves for the rest of their lives.” Alas, it’s not as simple as that.
    I too attended lavish expat parties where poor people were outside begging for food, chased away by guards: no one really cared, even the national about. The ones who genuinely care are often disillusioned and quit too early.

    Mentalities die hard and the problem won’t be resolved overnight: we need more “specialists” and more humanists.

    J.C. Paquin

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  3. Michael Ilyinsky says:

    If the U.S. government needs money, simply have the IRS audit all of the non-profits and hold the board of directors financially responsible.

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  4. clara says:

    Any comments about the ACS?

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  5. Troy Camplin, Ph.D. says:

    Actually, it’s the specialists and the humanists who have gotten Africa to where it is: nowhere, and worse off. How about we fire all those people and cut off all aid so that these countries will be forces to make the free market and property rights reforms that are the only things that that will result in and have ever resulted in prosperity? It seems to me that the primary barrier to people getting out of poverty is the existence of people whose livelihoods are made by “helping” the poor.

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  6. David says:

    # 27 “If the U.S. government needs money, simply have the IRS audit all of the non-profits and hold the board of directors financially responsible.”

    That would probably have the reverse affect. While the amount of money that the non-profit sector receives has been growing (currently about $280 billion and 80% from individuals), it has not been increasing as a percentage of GDP (steady at about 2%). Meanwhile, the Federal budget for social programs has been increasing and will soon engulf the Federal budget.

    Non-profit organizations may not be as efficient and effective as they could or should be with promoting the common good, but they are still more so than any government. Increasing government regulations would probably only cause more harm than good to non-profits, which in turn would put organizations out of business, open government agencies up to increase their bureaucracies, increase tax burden, and increase inefficiency.

    Market forces will improve the non-profit sector. Donors will demand more accountability, transparency, and better stewardship. The organizations that provide greater satisfaction in this regard will survive and maybe thrive while others will be exposed and close.

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  7. Vince says:

    There is a lot of “politics” in non-profits. This leads to people having their territory.

    I do not think most people start out stealing, but take a little out at first as a loan. This may happen more since the economy is tanking.

    Since there is little oversight over these territories the first time a person “borrows” the money it is realized how easy it is and with people living beyond their means it is easy to justify their using the money because of how underpaid they are.

    Someone other than the people who have access to them should reconcile bank accounts and cash accounts.

    I’m sure a lot of theft in these organizations is not reported, unless the amount has grown to large to cover up, because of the bad publicity.

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  8. charles labrecque says:

    Good morning,
    In Canada Québec gouv. ad discover the same problem few years ago so , they have requeird back a five years IRS audit sign by a professional to all of the non-profits, and hold the board of directors financially responsible.

    you will be suprise of what you will discover and the board of directors wil fly away like bomb shell splinters.

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