During the week news sources have extensively reported on a former business manager of a large girls' school in Sydney who has been charged with fraud in an amount which is reported to total over $460,000.

This case is a timely reminder that schools and not-for-profit organisations generally require the same fraud and corruption prevention and accountability controls as other businesses. In fact, given that the viability of a school can depend on its reputation, there is a case to be made that fraud and corruption prevention programs are even more important in schools than in other organisations.

The 2014 BDO Not-for Profit Fraud Survey (NFP Survey) provides some interesting data which highlights that not only is fraud common, it is also preventable. Key findings of the NFP Survey include:

• 10% of NFPs surveyed admitted suffering fraud in the past two years;
• 54% of respondents did not report the fraud to Police;
• NFP’s that had a risk management framework in place had suffered an average fraud of $5,571, compared with those that didn’t who suffered an average fraud of $57,338;
• NFPs with risk management programs are, on average, subject to 90% less fraud than those that don't;
• primary factors that reduce fraud are external audits (83%), ethical organisational culture (81%), and strong internal controls (77%);
• 30% of the largest fraud incidents reported involved collusion and of these, 31% involved a Board Member

These figures should certainly give some food for thought for school governors, principals and senior executives. But what to do about it!

We know that at School Governance we harp on about it, however yet again the prevention of these types of losses, and reputational damage, ultimately comes down to having a robust internal governance, risk and compliance infrastructure.

Specific examples of governance programs that should be implemented include:

• an Enterprise Risk Management Program that is used to identify all material risks in a school including fraud and corruption risks (ISO 31000 provides effective guidance);
• a Fraud and Corruption Control Program which adopts a four-stage risk management approach to controlling fraud and corruption (AS 8001 provides effective guidance);
• a Whistleblower Program which enables enable individuals to report, in good faith, conduct they reasonably believe to be corrupt, illegal or unethical (AS 8004 provides effective guidance);
• an Organisational Code of Conduct which sets out your key values and how they should be applied within your workplace and in dealings with those at your school. An effectively implemented Code of Conduct is an important management tool which can positively shape a school’s culture (AS 8002-2003 provides effective guidance);
• a Compliance (Internal Control) Program which ensures that individuals within the school are actually following the schools policies and procedures in practice (ISO 19600 provides effective guidance – this standard published in December 2014 supersedes the Australian standard AS 3806).
• a Complaints Handling Program which acts as a key risk indicator that may pick up unusual or inappropriate behaviour patterns of staff within the school (ISO 10002 provides effective guidance);
• a robust Human Resources Program which includes internal grievance procedures and ensures that key policies and procedures within the school (including ethical conduct requirements) are effectively communicated to staff.

Common workplace initiatives that organisations often use to reduce fraud and corruption include:

• effective pre-employment screening;
• separation of duties when implementing financial controls;
• insisting that employees in high-risk areas take leave regularly;
• rotation of employees where the potential for corrupt behaviour exists (e.g. procurement);
• fraud and corruption awareness training;
• robust staff performance reviews;
• effective staff disciplinary processes and procedures;
• regular review of transactions involving suppliers that are identified as being high risk (e.g. frequently engaged contractors regularly submitting small invoices);
• ensuring effective internal communications channels to allow individuals to raise concerns with respect to inappropriate behaviour; and
• the development of open channels of communication with suppliers and other third parties to encourage these parties to come forward if there is an indication of corrupt conduct involving the school or a person associated with the school.

Or you could just sit back, do nothing and hope for the best.