What are common indicators of fraud risk in nonprofit treasury?

• A. Unusual journal entries, lack of supporting documentation, weak controls, or frequent cash handoffs
• B. Always complete and correct entries
• C. Healthy cash balance
• D. Transparent reporting

Answer: (A)

In nonprofit treasury, fraud risk tends to rise when controls are weak and there’s little evidence tying transactions to proper oversight. The indicators listed capture that lack of traceability and accountability.

Unusual journal entries stand out because they deviate from normal, routine processing and can be used to conceal misappropriation or to falsify financial results. When entries don’t follow established procedures, occur at odd times, or affect unusual accounts, they raise suspicion that someone is trying to hide a misuse of funds.

Lack of supporting documentation erodes the audit trail. If receipts, approvals, invoices, or other evidence aren’t attached to a transaction, there’s no verifiable purpose or authority behind it, making it easy to manipulate or steal without detection.

Weak controls are a broad red flag. This includes insufficient separation of duties, no independent review of significant activities, or missing reconciliations. When one person can initiate, approve, and record a transaction, opportunities for fraud increase substantially because there’s no independent check.

Frequent cash handoffs are another clear danger. Cash is inherently high-risk because it’s tangible and portable; repeated transfers without custody controls, documented routes, or receipts create chances for theft or errors to go unnoticed.

By contrast, consistently complete and correct entries, a healthy cash balance, and transparent reporting describe well-managed conditions and strong governance, which reduce fraud risk rather than indicate it.