Financial Forensic Review
Situation:
After securing millions of dollars, mainly from five major donors, a nonprofit organization was prepared to report on the utilization of these funds to fulfill its mission. However, they faced a significant issue: they couldn’t account for where the money had gone. The nonprofit’s financial reporting was so unreliable that board members suspected the employee who set up the accounting system might have intentionally mishandled it to hide fraud. Their concerns intensified when the employee abruptly left the organization and it was discovered that the employee had failed to properly integrate a third-party payment processor into the accounting system, leaving management without access to detailed spending records. The nonprofit had expanded rapidly without any written accounting policies or procedures, and the employee lacked an accounting background. The board of directors engaged Brian Forensics to conduct a financial forensic review to trace the funds and determine if any wrongdoing had occurred.
Strategy:
In our financial forensic review, we gather, understand, and evaluate both quantitative and qualitative evidence to uncover accounting irregularities and potential financial misconduct. Before analyzing the nonprofit’s financial data, we first gained a thorough understanding of the organization’s mission and purpose. This approach enabled us to identify transactions that aligned with the organization’s profile and those that did not. The review spanned five years, covering nearly $5 million in major contributions and $2 million in disbursements. We used advanced data analytics to compare the accounting records with bank statements and third-party payment processor data, revealing how money actually flowed. This analysis helped us identify transactions that did not conform to the nonprofit’s mission.
Findings:
Our financial forensic review provided the organization’s leaders with a comprehensive view of how funds were spent, including details of disbursements that deviated from the nonprofit’s mission. Fortunately, while we found some discrepancies between the accounting records and bank statements, the amounts were minor and appeared to result from disorganization and rapid growth in an environment lacking formal accounting processes. Ultimately, the Brian Forensics team recommended a set of accounting policies and procedures. The organization used our findings and recommendations to update its accounting system, ensuring reliable financial reporting going forward.
