Fraud Detection & Prevention Flashcards

Which federal agency oversees the investigation of mail fraud involving charitable solicitations?

Answer: U.S. Postal Inspection Service

The U.S. Postal Inspection Service investigates fraud conducted through the mail, including fraudulent charitable solicitation campaigns.

What is the primary purpose of a nonprofit's conflict of interest policy?

Answer: To identify and manage situations where personal interests could improperly influence organizational decisions

Conflict of interest policies require disclosure and recusal when a decision-maker's personal interests could bias their organizational decisions.

A charity solicits donations for a specific named fund but commingles those funds with general operating revenue. This practice is:

Answer: Potentially fraudulent and a breach of donor intent

Restricted gifts must be used for their designated purpose; commingling and misuse constitutes a violation of donor intent and may constitute fraud.

Which due diligence step is most important before a CAP advisor recommends a gift to an international charity?

Answer: Confirming U.S. tax-deductibility status and anti-money-laundering compliance

International gifts require confirming deductibility (often via a U.S. fiscal sponsor) and compliance with OFAC and anti-terrorism financing rules.

A nonprofit board member notices that expense reimbursements have increased 300% without a corresponding increase in activity. The best next step is:

Answer: Requesting a detailed expense audit and documentation review

Unexplained spikes in reimbursements are a classic fraud indicator requiring immediate documentation review and audit.

What is 'lapping' in the context of nonprofit cash receipts fraud?

Answer: Stealing a payment then covering it with a subsequent receipt from another donor

Lapping involves stealing an incoming payment and using a later receipt to cover the shortage, creating a revolving concealment scheme.

Which element makes a whistleblower protection policy particularly effective at deterring fraud in nonprofits?

Answer: Providing anonymous reporting options with no fear of retaliation

Anonymous, retaliation-free reporting channels encourage insiders with knowledge of fraud to come forward without personal risk.