Employee theft is an often-overlooked risk lurking beneath the surface in not-for-profits. Even the smallest organization can experience significant financial loss, as research shows that not-for-profits lose up to 5% of their annual revenue to fraud. Reducing the risk and occurrences of fraud cannot only help make sure resources are used for your organization’s mission but can save money and time, as well as avoid reputational risk if prevented.  

One significant risk within the area of internal theft is hiding in plain sight: information technology. In today's increasingly digitized world, the IT department is the backbone of any organization. With what is often independence in purchasing technological equipment, software and service contracts, IT has limited segregation of duties concerning access to assets and approval for payment.  Supervision and monitoring relative to spending should be considered by accounting in terms of making sure this segregation risk is limited to the greatest extent possible. 

Why Your IT Department Could Pose a Risk

With the power to purchase and take custody of valuable resources, IT is often given the trust and authority to sign off on invoices for receipt of goods, software licenses or services. However, commonly, nobody outside of IT monitors these purchases. The equipment can easily slip out of the door without tracking controls, and software seats may get transferred or sold. Services could be delivered by parties who might offer kickbacks or even be delivered by parties who have relationships with people leading IT.

This inherent lack of oversight underscores the need for heightened awareness and the implementation of checks and balances to ensure organizational integrity. There is also great value in deterring theft through the perception that somebody is watching the store.   

Inventory Management is Key to Prevent Theft

Keeping a keen eye on technological purchases is the first line of defense. Not-for-profits must meticulously monitor the acquisition of assets, ensuring their presence within the organization. By conducting regular internal inventory audits, transparency and accountability can be maintained.  Pay close attention to software receipts and serial numbers on servers and other equipment — after all, there should always be a device or items when there is an invoice.

Don't be afraid to delve deep; a thorough, surgical inspection of IT purchases and software licenses is a must. Periodically verify purchases and cross-reference the number of software seats with the actual users in the organization. This attention to detail not only deters potential theft but also fosters a culture of responsibility and trust among IT staff and their colleagues. Often IT already has these tracking systems internally within department functions, and that can be considered a starting point for broader transparency.

You should also turn your focus to secure storage for IT inventory. Amidst the hustle and bustle of daily operations, IT rooms can quickly devolve into a tangled mess of cords, laptops and miscellaneous equipment. Surrounded by such disarray, it's all too easy for any employee — whether an IT specialist or not — to seize an opportunity in an uncontrolled environment.

The solution? Prioritize organization and security. Lock away pricey technology in secure cabinets, transforming that cluttered IT room into a fortress of order and safety.

When You Suspect Internal Theft

When faced with the uneasy feeling that an IT employee may engage in nefarious activities, your organization must act with discretion and determination. The first course of action should be gathering evidence discreetly — monitoring inventory, reviewing purchase records and scrutinizing software licenses. Next, involve senior management and human resources in the investigation, ensuring transparency and adherence to proper procedures. If the evidence substantiates the suspicions, consult with legal counsel, and consider involving law enforcement. Remember, as difficult as it may be, addressing the issue head-on is crucial.

Copyright © 2023, Tax Analysts. Author: Chandra Wallace. All Rights Reserved. Content may not be shared, reproduced, modified, published, distributed, or otherwise recreated in any fashion without the express prior written consent of Tax Analysts and CBIZ. This publication is distributed with the understanding that CBIZ is not rendering legal, accounting or other professional advice. The reader is advised to contact a tax professional prior to taking any action based upon this information. CBIZ assumes no liability whatsoever in connection with the use of this information and assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.

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