Grant fraud in nonprofit organizations: Insider threat

10 minute read

Great news! Your organization just received a large federal grant to provide counseling services to victims of domestic violence. This is welcome news for your organization, as it can now expand its services and hire additional staff. Now, the hard work begins: monitoring and oversight of the public funds entrusted to you. Is your organization ready to protect the public dollars it has been entrusted with to ensure they are used in accordance with grant rules and the law?

Every year, federal, state, private, and nonprofit groups award billions of dollars in grant funds to organizations of all sizes to deliver services, pay staff salaries, fund programs (e.g., scientific research, public housing assistance, food programs, refugee resettlement), and myriad other uses. Unlike a loan, grants need not be paid back; however, they do come with a significant number of rules and conditions that, if not followed, may cause your organization significant harm—including ineligibility to receive future grant funding and potentially criminal liability.

While many organizations hire grant writers and consultants to write proposals and complete grant applications, these same organizations often fail to have the proper infrastructure in place to ensure compliance with grant rules. This can be a confusing mixture of federal and state regulations, including obscure references to such documents as U.S. Office of Management and Budget circulars.

And if the rules and regulations are not enough to keep an organization on its toes, fraudsters also lurk around the corner, looking to take advantage of poor oversight. Ineligible individuals may seek to obtain services or funds from your organization through fraudulent means—such as misrepresenting their income level or number of dependents to receive benefits they are not entitled to. More likely, employees of your organization may commit fraud against a grant by billing for services that were not delivered, misusing the funds, or through self-enrichment schemes that could involve conflicts of interest.

Is all that enough to make your head spin? Let’s take a closer look at some particulars to protect your organization from both mistakes and fraud.

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