While the holiday season often puts people in a charitable mood, Steve Froehlich is already bracing for the inevitable by the time October rolls around. As senior director of direct response at the American Society for the Prevention of Cruelty to Animals (ASPCA), Froehlich knows that donors may understand the cause they’re funding, but many don’t understand how those funds are allocated. Each year, he says, he’s confronted with family members who ask, “How much of each dollar really goes to the actual programs?” It’s a question that many nonprofits struggle to answer.
 
In December 2007, the Nonprofit and Voluntary Sector Quarterly published a report titled, “An Investigation of Fraud in Nonprofit Organizations,” cataloguing malfeasance that amounted to billions of dollars each year. In response, the authors advocated certain strategies, including the urging of “governing boards…to consider important controls in addition to the annual financial statement audit.” According to a report by the The New York Times, the authors—four United States–based university professors specializing in nonprofit accounting—determined that fraud impacts all organizations (i.e., nonprofits, for-profit companies, and government agencies), generating an average revenue loss of 6 percent annually. For the nonprofit sector, which reported donations of $665 billion in the year 2006 alone, that translates into approximately $40 billion.
 
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