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The NEWS (Monrovia)

Liberia: Corruption And Exploitation in Not-for-Profit Organizations

Theo Dekonty Joseph

23 April 2008

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opinion

Monrovia — In recent times, much attention has been drawn to Corruption and Exploitation in Not-For-Profit Organizations. Not-For-Profit (Charitable) Organizations symbolize "TRUST" in so many ways. There exists the Trust from the Donating Public (Donors), the Trust from the Beneficiaries of the program services, the Trust from the Not-For-Profit Organizations to their Employees in carrying out the programs' objectives of the Not-For-Profit Organizations. Not-For-Profit (Charitable) Organizations have to market themselves to the public (Donors and Beneficiaries of Program Services - both potential and existing). Most Not-For-Profit Organizations operating in Liberia today pay little or no attention to proper accounting for their transactions, Internal Controls- to help safeguard the assets of the organizations, and financial oversight responsibilities.

The term Not-For-Profit (Charitable) / Non- Governmental Organizations applies to any organization that qualifies for exemption from Income Tax under the Revenue Code of the Republic of Liberia 2000.

Any organization that qualifies for tax exempt status under Part 1, Chapter 1, Section 9 of the Revenue Code of the Republic of Liberia 2000, is generally referred to as a Not-For-Profit Organization.

The following are some examples of Not-For-Profit / (Charitable) Organizations operating in Liberia:

Churches, Mosques and Other Religious Organizations; International Organizations (World and Regional Bodies), Local Non-Governmental Organizations, International Non-Governmental Organizations, Social Services Agencies; Private Universities and Schools. Healthcare Organizations, Sports Associations, War and Other Disaster Relief Organizations, Labor Unions, Trade and Professional Associations, etc.

From International Organizations (World and Regional Bodies), Local Non-Governmental Organizations, International Non-Governmental Organizations, Charities, Universities and Schools, War and Other Disaster Relief Organizations and some Churches and Other Religious Organizations etc. are all involved one way or the other in the new wave of fraud and abuse in Not-For-Profit Organizations.

Perpetrators Of Corruption and Exploitation Against Not-For-Profit Organizations

Not-For-Profit Employees, Officer and Board of Directors, Volunteers, Organizations that provide out-sourced functions, Vendors, Sub-recipients (Beneficiaries of program Services), Implementing Partners, Donors, members and Program Participants and Competitors may all be involved in the perpetration of Corruption and Exploitation against Not-For-Profit Organizations.

In most Not-For-Profit Organizations, many traditional internal accounting controls concentrate on the prevention of fraud at the lower level of the organizations. However, it is important to note that as Management and Employees are given more responsibilities and promotions to higher positions of Trust, the total dollar potential for Corruption and Exploitation to be perpetrated by those persons also rises.

Types Of Occupational Fraud (Corruption And Exploitation) Committed Against Not-For-Profit Organizations

The Association of Certified Fraud Examiners (ACFE) defines Occupational Fraud as: "The use of one's Occupation for personal enrichment through deliberate misuse or misapplication of the employing organization's resources or assets".

Misrepresentation of Facts, Breach of Fiduciary Relationships and Responsibilities, Suppression of the Truth and Omission of Critical Facts are all acts of Fraud (Corruption and Exploitation).

Corruption and Acts of Exploitation committed against Not-For-Profit Organizations are of two general types: (1) Internal Acts of Fraud and Abuse and (2) External Acts of Fraud and Abuse.

Internal Acts of Fraud and Abuse - are perpetrated by people inside the organization - employees, Management, Directors and Board of Directors.

Generally, there are two types of Internal Acts of Fraud and Abuse carried out against a Not-For-Profit Organization: (i) Misappropriation of Assets and (ii) Acts of Corruption.

(i) Misappropriation of Assets - is the most widespread of fraud schemes against Not-For-Profit Organizations by Insiders. The asset most often misappropriated is cash.

Assets misappropriation may involve any of the following:

- Purchasing and Cash Disbursement Schemes;

- Revenue and Cash Receipts Schemes;

- Payroll and Employee Expense Reporting Schemes;

- Non-Cash Asset Misappropriation Schemes.

There are various methods of perpetrating fraud within each of the areas listed above.

With Purchasing and Cash Disbursement Schemes, Revenue and Cash Receipts Schemes, and Payroll and Employee Expense Reporting Schemes, stealing "CASH" is the objective. Stealing Revenue / Cash Receipt, Forging Checks and Other Supporting Documents, and other acts of Misuse fall into the Cash Theft Scheme. With Non-Cash Asset Misappropriations, some other assets, such as Inventories, Equipment etc. are stolen.

(ii) Acts of Corruption- Corruption takes place when an Officer or an Employee users his or her influence in a business transaction in an inappropriate way to benefit him or herself at the expense of the employing organization. In Not-For-Profit Organizations, Kickback schemes from Vendors to Officers or Employees of the Not-For-Profit Organization for authorizing the payment of an inflated invoice price by the organization, undisclosed conflict of interest- an Officer, Manager or Member of the Board of Directors having an undisclosed financial interest in a Vendor with whom the organization does business or is awarding a contract.

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