Home / Articles / How your nonprofit can avoid investment fraud

How your nonprofit can avoid investment fraud

August 24, 2017

Share:

Investment fraud, such as Ponzi schemes, can cause significant financial losses for not-for-profits. But the harm it can cause an organization’s reputation with donors and the public may be even worse. Nonprofits are required to disclose on their Forms 990 whether they’ve experienced a significant loss to any illegal “diversion” that exceeds the lesser of 5% of gross receipts, 5% of total assets or $250,000. Such data becomes public and is likely to be reported by charity watchdog groups and the media.

To avoid such consequences, your nonprofit needs to screen investment advisors carefully. Here’s how.

Profile in deceit

One way investment fraud differs from occupational fraud is that its perpetrators generally are outside advisors — not employees. They may be brokers, bankers, financial planners, investment advisors or even self-styled money experts. In many cases, thieves are registered or licensed, enjoy good reputations in their communities, and have no previous records of wrongdoing.

How, then, can your organization avoid hiring a crook? First, beware of unrealistic promises. If an advisor guarantees immediate results or annual returns of 20% — even in years when the general stock market is down — he or she is either lying or incompetent. Also be wary of investment fund managers who don’t submit to outside audits or report their results publicly.

The right stuff

Instead, look for an advisor who encourages you to discuss investment goals and risk concerns. Your advisor should understand your organization’s investment policy — or be willing to help you develop one. Accessibility is important, too. For example, your board likely holds meetings after business hours and your advisor needs to be able to meet with them from time to time.

Ask other nonprofits, or your attorney or CPA, for investment advisor referrals. And make sure your board scrutinizes your advisor’s investment recommendations, carefully reviews performance reports and constantly monitors account balances. Contact us for more suggestions for finding a trustworthy investment advisor.

© 2017

All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a Clark Schaefer Hackett professional. Clark Schaefer Hackett will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.

Guidance

Related Articles

Article

2 Min Read

NYDFS Cybersecurity Checklist

Article

2 Min Read

NFT Considerations for Not-for-Profit Organizations

Article

2 Min Read

Year-End Spending Package Tackles Retirement Planning and Conservation Easements

Article

2 Min Read

2023 Tax Calendar

Article

2 Min Read

Ohio Governor Mike DeWine Appoints Amr Elaskary of Clark Schaefer Hackett to the Accountancy Board of Ohio

Article

2 Min Read

Zach Gubser Rejoins Clark Schaefer Hackett in Shareholder Role

Get in Touch.

What service are you looking for? We'll match you with an experienced advisor, who will help you find an effective and sustainable solution.
  • Hidden
  • This field is for validation purposes and should be left unchanged.