Empowering Employees to Prevent Fraud in Nonprofit Organizations

This Article examines the significant problem of fraud within nonprofit organizations and demonstrates that current anti-fraud measures do not adequately reflect the important role employees play in perpetuating or stopping fraudulent activity. Psychological and organizational behavior studies have established the importance of (1) participation and (2) peers in shaping the behavior of individuals within the organizational context. This Article builds on that research and establishes that to successfully combat fraud, organizations must integrate employees into the design, implementation, and enforcement of antifraud strategy and procedures. Engaged, empowered employees will be less likely to commit fraud and more likely to dissuade their peers from fraudulent behavior. After examining the theory underlying the proposed approach, this Article sets forth directions and specific suggestions for designing an anti-fraud program that empowers employees. INTRODUCTION............................................................................................ 712 I. THE NONPROFIT SECTOR’S FRAUD PROBLEM ............................. 714 II. COMBATING FRAUD WITHIN NONPROFIT ORGANIZATIONS ... 719 A. Review of Current Approaches: Monitoring, Leadership Tone, Directives to Employees ................................................................. 720 B. Theoretical Support for the Proposed Approach of Empowering Employees ..................................................................................... 724 i. Employees Who Participate in Decision-Making Scrupulously Attend to the Rules and Seek Compliance by Others ....................................................... 725 ii. Employee Commitment Sends an Influential Peer * Legal Practice Skills Lecturer, University of Pennsylvania Law School. JD, University of Notre Dame Law School (2005); BS, Saint Joseph’s University Haub School of Business (1998). John may be reached at [email protected]. I wish to thank Alison Kehner and Praveen Kosuri for their helpful comments. 3685cap_13-3 S heet N o. 35 S de B 084/2015 0937:37 36856-cap_13-3 Sheet No. 35 Side B 08/14/2015 09:37:37