The effectiveness of fraud detection instruments in not-for-profit organizations

Abstract

Purpose

The purpose of this study is to investigate the effectiveness of fraud detection instruments in not-for-profit (NFP) organizations. Not-for-profit organizations rely on trust and volunteer support. They are often small in size and do not have relevant expertise to prevent fraud. Such organizations are more vulnerable to fraud and, consequently, require effective fraud detection instruments. The existing literature on fraud detection is primarily descriptive and does not measure instrument performance. The authors address this research gap and provide a detailed overview of the impact of nine common fraud detection instruments.

Design/methodology/approach

Data were obtained from an NFP fraud survey conducted in Australia and New Zealand. A set of contingency tables is produced to explore the relationship between the existence of a specific fraud detection instrument and actual detection of fraud. We also investigate the relationship between organization size and fraud detection strategy.

Findings

The findings provide valuable insights into understanding fraud detection mechanisms. Although most fraud detection measures may not lead to more fraud detection, three highly effective instruments emerge, namely, fraud control policies, whistle-blower policies and fraud risk registers. The results also reveal that commonly used fraud detection instruments are not necessarily the most effective. This is true in a significant number of small organizations that appear to be focusing on ineffective fraud detection instruments.

Practical implications

Implementation of more effective fraud detection measures will reduce the damage caused to an organization and is highly relevant for practitioners.

Originality/value

The results show that differences in the effectiveness of fraud detection instruments in the NFP sector exist. This knowledge is directly applicable by related organizations to reduce fraud damage.

Citation

Kummer, T.-F., Singh, K. and Best, P. (2015), "The effectiveness of fraud detection instruments in not-for-profit organizations", Managerial Auditing Journal, Vol. 30 No. 4/5, pp. 435-455. https://doi.org/10.1108/MAJ-08-2014-1083