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August 2013 Vol. 4 No.

UHY Advisors Mid-Atlantic MD, Inc.

Tax & Business Consultants

Nonprofit Insider
Revenue Recognition
fied Fraud Examiners (ACFE) of 508 fraud cases, 58 of which were in the nonprofit sector. Some of their findings are discussed below and may give you reason to pause when considering fraud in your workplace. By Lynn Rodriguez, Senior Staff Accountant

UHY LLP brings specialists in nonprofit solutions in accounting and tax

Some Surprising Facts

The Who, What and How of Fraud

By Carol Shepherd, Senior think it is human nature to have a certain amount of trust in your coworkers, especially those with whom you might have worked with for a number of years. To consider that one of your trusted coworkers may be undertaking a fraudulent activity is difficult, as it tends to be counterintuitive to our need to trust others. As an auditor, I am required to make inquiries about fraud during the audit process. In my experience, the most common response to my fraud-related questions is a quick no. And yet fraud occurs, oftenand unfortunatelyby some of the more trusted people inside of organizations. While it is a good thing that there may be no suspicions of fraud, the word no is not typically prefaced with a pause for reflection. Before you ready your arsenal of nos to rapid fire back to your auditor, lets take a look at the who, what and how of fraud. The data may surprise you! I recently read about a study conducted by the Association of Certi-

Services Received from Personnel of an Affiliate

Who does it?

While there is not one stereotype of a workplace fraudster, there are some indicators that could put certain people at a higher risk. Organizations that do not have clear lines of authority and procedures for transaction authorization are more susceptible. Consider these facts: A typical nonprofit fraud is committed by a female whose median age is 41, makes less than $50,000 per year and has tenure of less than three years with the organization. Twenty-five percent of fraud is committed by managers and nine percent by executives. The largest losses stem from those who have been with their organization longer than 10 years, and are between the ages of 51 and 60.
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n April 2013, the Financial Accounting Standards Board (FASB) issued an amendment to the guidance on not-for-profit revenue recognition policies, specifically relating to services received from personnel of an affiliate. Effective for fiscal years beginning after June 15, 2014, and interim and annual periods thereafter, a not-forprofit entity (recipient) is required to recognize all services received directly from personnel of an affiliate that directly benefit the recipient and for which the affiliate does not charge the recipient. These costs not being charged by the affiliate must be measured by the recipient at the cost recognized by the affiliate for the services provided. If the cost to be recognized will significantly overstate or understate the value of the services received, the recipient may elect to recognize the services at either the cost recognized by the affiliate
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The Who, What and How of Fraud continued Those with high personal debts who live beyond their means are at a higher risk to commit fraud. Employees may refuse to take a vacation for fear their fraud could be uncovered in their absence. organization from fraudulent activity; however, there are several important preventive measures that can be taken to protect your organization. Periodically review your internal controls for changes in staffing needs of the organization. Periodically assess if your internal controls are still effective in an ever-changing digital world. Consider the tone at the top. Does your organization promote a culture that encourages questions? One that provides an avenue for employees to bring forth their concerns? Services Received from Personnel of an Afliate continued for the personnel providing the services or the fair value of the services received. For financial statement presentation purposes, an increase in net assets associated with the services received and a decrease in net assets or the creation/enhancement of an asset shall be presented similar to how other such expenses or assets are presented, rather than being shown as a contra-expense or contra-asset.

What type of fraud?

The most common type of fraud is asset misappropriation, which accounts for more than 97 percent of reported frauds. Ninety-five percent of the time cash is the asset misap-

The most common type of fraud is asset misappropriation.

propriated. Half of cash misappropriations occur through fraudulent billing, such as sending payments to fake vendors. Payroll fraud, expense reimbursements fraud, and check tampering are other methods used.

Consider adopting a formal, safe whistleblower policy. Require accounting personnel and officers to take a minimum of five days of vacation. When hiring, consider performing background checks for prospective employees who are applying for cash-handling positions. Have an external annual audit. Get insurance coverage or bonding for employees who handle or have access to cash. I hope this has given you some points to consider, and perhaps next time you will take some time to consider the potential for fraud occurring at your organization. Whether prompted by your auditor, or not, remember the who, what and how of fraud. Disclosures of this amended policy in the financial statements can be presented in one of two ways: 1) prospectively for fiscal years beginning after June 15, 2014, and interim and annual periods thereafter and 2) using a modified retrospective approach in which all prior periods presented upon the date of adoption shall be adjusted, but no adjustment shall be made to the beginning balance of net assets of the earliest period presented. Early adoption of this amended policy is allowed by FASB.

How is it discovered?
More than 40 percent of the time fraud is discovered from tips provided by employees; a quarter of the time internal auditors catch it. Surprisingly, only 12 percent of fraud activities are caught by external audits, while 23 percent are caught by accident!

What to do?
Policies and procedures should be in place to monitor every employee, no matter how trusted they are. There is no way to completely safeguard your

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