Agenda

1. Leveraging Entity Level Controls in Not-for-Profit OrganizationsSeptember 24, 2008 RSM McGladrey Inc. is a member firm of RSM International – an affiliation of separate and independent legal entities.

2. Agenda • Overall Findings • Occupational Fraud & Abuse • Asset Misappropriation • Detection Methods – Not for Profits • Anti-Fraud Controls with the Highest Reduction in Median Losses • Leveraging Entity Level Controls

3. Overall Findings • 7% of annual revenue lost to fraudulent activity which translates into an estimated $994 billion • $175,000 median loss • 2 years to detect fraud and typically from employee tips • Higher median losses for organizations with <100 employees of $200,000 • Lack of adequate internal controls • Implemented anti-fraud controls lowered median losses • Perpetrators – Accounting dept or upper management and generally first-time offenders Source: ACFE 2008 Report to the Nation on Occupational Fraud & Abuse

4. Source: ACFE 2008 Report to the Nation on Occupational Fraud & Abuse

5. Source: ACFE 2008 Report to the Nation on Occupational Fraud & Abuse

6. The majority of tips came from employees. Source: ACFE 2008 Report to the Nation on Occupational Fraud & Abuse

7. Source: ACFE 2008 Report to the Nation on Occupational Fraud & Abuse

8. Leveraging Entity Level Controls • Entity Level controls can assist in preventing fraud in an organization and can help to better manage an organization’s total risk. • Promote Integrity and Ethical Behavior • Create an organization that values integrity and ethical behavior including removing incentives that promote unethical behavior • Publish a Code of Conduct or Ethics with consequences and Whistleblower Policy/Conflict of Interest Policy that is accessible to all employees • Reinforce the importance of your organizational values with annual review and sign-off • Commit to Hiring and Retaining Competent Employees • Write job descriptions that outline roles and responsibilities • Invest in educating and training and require specific job-related training • Perform background checks for new employees

9. Leveraging Entity Level Controls (cont.) • Enhance the Effectiveness of the Audit Committee • Write audit committee charter • Authorize audit committee to hire external audit with reporting lines to committee • Approve in advance by committee for non-audit services • Include a “financial expert” on audit committee • Structure Your Organization to Promote Effective Internal Controls • Identify the areas segregation of duties issues may exist • Determine potential alternatives to resolving issue • Determine whether reliable compensating or mitigating controls can be implemented • Address who will serve in a back-up capacity and develop a disaster recovery and business continuity plan NOTE – All organizations (including NFP) who receive Federal funding must adhere to two aspects of SOX – 1) Adopt a Whistleblower Policy and 2) Adopt a Document Retention and Destruction Policy.

10. End Goal: Enhanced control environment by leveraging Entity Level Controls Sharon Griffin – 804-281-6886 sharon.griffin@rsmi.com Michaelle Keiffer – 301-296-3717 michaelle.keiffer@rsmi.com