Judith Illingworth, ex-principal of government school Djarragun College in Queensland, has pleaded guilty in the District Court in Cairns (Court) to defrauding the Queensland and Federal Governments of $3.4 million of funding in 2010 and 2011. In November last year, we reported on Ms Illingworth's case, which, at that time, involved claims that she had defrauded over $9 million. ABC news reports that Ms Illingworth's guilty plea has avoided what was to have been a five week fraud trial.

This week's proceedings in Court are the culmination of a sad fall from grace for the former Senior Queenslander of the Year, who will be sentenced on Friday. According to ABC News, the State and Federal Governments have reportedly forgiven the school's debts in the interests of the students - a positive result from an incident which has caused damage to the school's reputation in the community.

Increasing fraud is not a trend that is limited to government organisations or schools and sadly, incidents of fraud in the not-for-profit (NFP) sector are constantly reported in the news, which should place all schools on alert. Each time an act of fraud occurs, trust in an organisation such as a non-government school, is eroded, damaging the ability of the organisation to raise funds. The associated financial loss and reputational damage also undermine and threaten a school's key objectives, such as delivering a high level of education and contributing to the community.

Earlier this year, a high-profile incident of fraud at a non-government girls school in Sydney attracted the sort of negative publicity every school hopes to avoid. The school revealed that it had experienced an incident of fraud, this time from the school bursar. The Australian reported that the former bursar was accused of stealing more than $400,000 from the school. Although the school had managed to keep the matter confidential while investigating the incident and the bursar repaid some of the money, circumstances dictated that it eventually had to become public.

So, how common is fraud in the NFP sector, and what can your school do to minimise the risk of it occurring?

Our previous article 'Fraud in schools, it couldn't happen to me' disclosed some compelling statistics showing the vulnerability of NFPs to acts of fraud. The BDO Not-For-Profit Survey 2014 again provides interesting reading and includes some statistics representing findings for the period of 2012-2014 which should provoke consideration amongst all schools.

Did you know that in 2014:

• fraud totalling $3,229,400 was reported, with the average fraud being $22,904;
• of the respondents who experienced fraud, 70% had suffered fraud previously;
• the average duration of each fraud was 14 months;
• the typical fraudster was aged over 50 and was a paid employee in a non-accounting role;
• 30% of the largest fraud incidents reported involved collusion and of these, 31% involved a Board member;
• 54% of respondents did not report the fraud to police; and
• 53% of organisations that suffered fraud did not recover any funds from the perpetrator.

The BDO Report also notes that NFPs are beginning to think, look and act like a business, which means it is important for schools to not only consider the risk of fraud, but also the school’s overall risk and governance framework.

So what can your school do to minimise the risk of fraud occurring?

First, management of financial controls are an obvious starting point e.g. the introduction of a Fraud and Corruption Control program, which requires the internal scrutiny of cash flows, regular external audits, separation of approvals from expenditure and clear financial delegations and limits.

Second, key non-financial measures that can be taken to establish a strong ethical culture which can significantly reduce the incidence of fraud, include:

• employment contracts which set out expectations of ethical behaviour regarding conflicts of interest, confidentiality obligations and consequences of misconduct;

• a comprehensive HR program including a Code of Conduct or explicit standards of ethical behaviour, policies covering gifts and gift registers, conflicts of interest, use of credit cards, entertainment and travel expenses, transparent recruitment processes, discipline and termination policies;

• a Whistleblower program which establishes a mechanism for employees and others to report corrupt, unethical or illegal conduct, backed up by an Internal Grievance program which provides another avenue for employees to raise issues of concern (for more information on whistleblower programs see our previous articles here and here);

• training and testing for staff and school council and board members in establishing a clear understanding of what constitutes ethical and unethical conduct, ‘the way we do things around here’; and

• consistent managerial action when faced with unethical behaviour.

Finally, another key finding in the BDO survey was that 54% of respondents did not report fraud to the police because of concerns relating to the impact of future funding opportunities and damage to the organisation’s reputation. That means that when recruiting, it becomes crucial for schools to conduct reference checks with former employers to reduce the chance of that incredibly experienced and qualified applicant being and an incredibly persuasive fraudster.

Does your school have fraud and corruption and whistleblower programs in place as part of its risk-management framework?