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How your nonprofit can avoid investment fraud

October 5, 2017 Stuart Mordfin, CPA, CGMA organizations reputation, investment fraud, ponzi schemes, financial losses, occupational fraud, unrealsitc promises, general stock market, investment fund managers, outside audits, investment advisor referrals, performance reports

How your nonprofit can avoid investment fraudInvestment 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

Stuart Mordfin, CPA, CGMA

Written by Stuart Mordfin, CPA, CGMA

Stuart M. Mordfin has over 30 years of experience as a certified public accountant. He has worked with clients in such diverse industries as manufacturing, publishing, real estate development and operations, jewelry and other luxury products, retail, restaurants, a variety of professional service companies. In addition he has on numerous occasions worked as a court appointed accountant on receiverships, guardianships and bankruptcies. Stuart has developed and expanded his CPA practice through innovation, well-informed decision-making, and creative, proactive thinking. Stuart M. Mordfin joined the firm in 1987, and has been a partner since 1999. He became managing partner in 2004. Since his entrée into the firm, Stuart has lead the way for its expansion into financial planning services through the formation of Mordfin Financial & Business Advisors LLC. Stuart works with many family-owned businesses. Experiencing firsthand what it means to be an integral part of the family business, Stuart is able to offer a unique and valuable perspective to his clients. He is well qualified to assist family-owned businesses move from one generation to the next.

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