Embezzlement is a persistent and often invisible threat to Michigan’s nonprofit sector —especially in rural communities. Between 2019 and 2023, the Michigan State Police recorded more than 10,000 incidents of embezzlement statewide, a staggering figure that underscores how widespread and damaging this crime can be.
As highlighted in a recent Bridge Michigan investigation, nonprofits across Michigan have lost tens of thousands of dollars to trusted insiders, shaking community trust and forcing some organizations to dissolve entirely.
Why Do So Many Nonprofits Experience Embezzlement?
While embezzlement can happen in an organization of any size, small and midsize nonprofits are especially vulnerable, says Chuck Story, CPA, CFE, a former FBI agent and current director of operations for Rehmann Corporate Investigative Services (CIS). He notes that many operate with lean staffing models, where one person may handle multiple financial roles — such as bookkeeping, bank deposits, and account reconciliation — creating opportunities for theft to go undetected.
Another factor: Many rely on basic or outdated accounting tools or even spreadsheets, rather than Enterprise Resource Planning (ERP) systems, which typically offer some functionality for implementing internal controls that can help prevent theft.
“If the ERP system is up to date, most have the ability where you can essentially say, ‘This person can do this step and this step, but she can’t do that step,’” Story says. “Setting certain access controls and authority [inside the ERP system] can supplement the lack of bodies.”
Best Practices for Internal Controls
Though a more affordable option than adding an employee, the cost of an ERP system might still be beyond the budget of a lean nonprofit.
If your organization has a small staff and lacks a sufficient ERP system, Story recommends “creatively leveraging” the abilities of your current accounting system and staff to segregate duties as much as possible.
For example, you want to ensure the same person isn’t identifying the bills, documenting the bills to be paid, paying the bills, and counting the cash — even if that means breaking up those tasks among different departments or outsourcing specific duties.
When staffing limitations make segregating duties among staffers too challenging, another potential option is to engage board members or finance committee members; their oversight and support in key control areas can be exceptionally beneficial in ensuring appropriate segregation of duties.
Ultimately, says Story, remember this: “Trust is not an internal control. We often hear in these embezzlement cases — especially from smaller organizations with long-tenured employees — ‘But I trusted him! I trusted her.’ Even when you hire people you trust, people you’ve vetted, people’s lives change. Influence and pressures change. And you cannot rely on trust for an internal control.”
3 Ways to Prevent & Stop Theft in Your Nonprofit
No matter the size of your staff or the accounting system you use, you can take action to safeguard your nonprofit and its mission:
1. Learn More: Click here for an article and short video that explain more about internal controls, including how to implement them effectively.
2. Assess Your Current State: An internal controls assessment reviews your organization’s policies and procedures, analyzes daily operations, and identifies where your organization is vulnerable to risk and fraud. Discover the breadth of Rehmann’s Risk Advisory Services and connect with our team here.
3. Raise a Flag: If you suspect someone in your organization might be embezzling, contact Rehman Corporate Investigative Services to learn more about the investigative service offerings.