By Timothy Doyle, Partner, and Timothy Ball, Partner, The Bonadio Group.
Recent high-profile cases in New York continue to highlight the real and ongoing dangers of occupational fraud in public-sector and nonprofit entities. In February 2026, a former New York State auditor pleaded guilty to second-degree grand larceny after diverting more than $405,000 from the Town of Wallkill’s bank accounts to his personal business accounts while assigned to audit the municipality. Earlier that same month, the New York State Comptroller charged the former mayor of the Village of Dannemora with tampering with public records by falsifying time sheets, allowing state correction officers to inflate their service credits and secure increased pension benefits.
For professionals in the accounting and auditing fields, these cases underscore the importance of understanding how fraud occurs within everyday workflows and how governance bodies can strengthen oversight to identify issues earlier.
Local governments and nonprofit organizations face unique operational challenges that can increase exposure to fraud. Many operate with lean staffs and decentralized financial responsibilities. In smaller entities, a single employee may oversee multiple steps in a financial process (approving purchases, recording transactions, and reconciling accounts) which can create opportunities for misuse. These dynamics can allow misconduct to continue for extended periods before detection.
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According to the Association of Certified Fraud Examiners’ Occupational Fraud 2024: A Report to the Nations, asset misappropriation remains the dominant form of occupational fraud. The median loss in government organizations stands at $150,000, while nonprofits typically see $76,000 per incident straining already tight budgets. These schemes often go undetected for a year or more, with employee tips remaining the most common method of discovery.
These realities emphasize the need for boards[1] and financial leaders to look beyond formal policies and evaluate how financial controls function in practice.
Fraud tends to concentrate in several interconnected financial workflows where volume, complexity, or limited oversight create openings:
- Revenue and cash management: Skimming of fees, donations, or program receipts often occurs when the same individual handles collection, deposit, and recording.
- Procurement and vendor disbursements: Manipulated invoices, fictitious suppliers, bid manipulation, or altered payment instructions enable overbilling or redirection. High-volume purchasing cycles in public works, IT services, or professional contracts can obscure irregularities.
- Payroll and benefits processing: Fabricated employees, overstated hours, or unauthorized adjustments to compensation and pension records can generate losses. In government settings where pension benefits are tied to earnings or overtime levels, manipulation of timekeeping data can have long-term financial implications.
- Grant and compliance reporting: Misstated expenditures or eligibility documentation can divert restricted funds. Pressure to meet performance metrics or documentation shortfalls in smaller organizations makes this area vulnerable.
- Bank reconciliations and electronic transfers: Unauthorized changes to account details or rushed month-end processes allow check tampering or wire fraud to go unnoticed until significant damage accumulates.
- Expense Reimbursements and Purchasing Cards: Expense reimbursement systems and organization credit cards can lead to misuse if monitoring is limited.
Addressing these fraud risks requires more than simply adding policies. Effective prevention involves aligning governance practices, financial processes, and organizational culture to create an environment where irregularities are identified quickly.
Governing boards and oversight bodies are responsible for shifting the focus from reactive detection to proactive prevention. Drawing on established forensic research and public-sector risk frameworks, the following governance actions can help identify issues sooner and reduce exposure without requiring extensive resources:
- Prioritize vulnerability identification: Boards should direct periodic reviews of financial processes to pinpoint where duties overlap or documentation gaps exist.
- Establish multi-level transaction safeguards: Require independent secondary approvals for disbursements, vendor additions, and adjustments above modest thresholds.
- Ensure internal operating guidelines: Create written procedures addressing electronic payments, remote access, purchasing-card usage, and conflict-of-interest disclosures.
- Establish ongoing awareness initiatives: Provide training sessions for staff on recognizing warning signs such as unusual vendor patterns, payroll anomalies, or suspicious email requests to help turn workers into an effective early-warning network.
- Incorporate routine data pattern monitoring: Leverage built-in features of standard accounting platforms to flag outliers like recurring round-dollar amounts, payments skirting approval levels, or sudden activity from dormant accounts.
- Strengthen confidential reporting mechanisms: Implement anonymous channels for raising concerns, paired with clear non-retaliation policies.
- Maintain structured oversight cadence: Schedule regular board-level discussions of key financial metrics, exception reports, and control effectiveness to demonstrate commitment to preventive efforts that aligned with changing conditions.
- Reinforce ethical leadership: Leadership behavior strongly influences how employees perceive accountability and transparency within the organization. Boards and executive leaders set expectations through policies, communication, and their response to ethical concerns.
Organizations applying these types of layered approaches could experience substantially lower median losses and faster fraud detection. By treating fraud prevention as an integral part of governance rather than a periodic compliance exercise, boards in local governments and nonprofits can better protect community assets and donor resources amid tightening budgets and heightened scrutiny.
As organizations adopt new technologies or expand programs, financial processes evolve and so do the risks associated with them. Because of the rapid advancement of technology and evolution of staff roles, fraud prevention cannot be a one-time initiative. For accounting professionals and governance leaders working with local governments and nonprofits, maintaining effective oversight means periodically reassessing financial workflows and ensuring that controls remain aligned with current operations.
The Wallkill and Dannemora cases serve as reminders that trusted insiders can exploit routine processes when safeguards lag. However, boards equipped with deliberate strategies can identify fraudulent activities earlier and preserve organizational integrity and public trust. By focusing on common risk areas, strengthening internal oversight, and fostering a culture of accountability, organizations can significantly improve their ability to detect fraud earlier and protect the resources entrusted to them.
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Timothy Doyle is a Consulting Partner for The Bonadio Group’s Public Sector & Not-for-Profit Industry. He provides audit, accounting, and consulting services for various government clients, such as counties, cities, towns, villages, public school districts, BOCES, community colleges, and tax-exempt organizations. Tim has developed extensive experience in compliance and reporting requirements for these organizations and the evaluation and design of internal accounting systems.
Timothy Ball is a Partner and leader of the Bonadio Advisory & Consulting group. Tim directly oversees a portfolio of 15 businesses. His primary objectives are quality, excellence, and innovation related to The Bonadio Group’s consulting services. Tim is responsible for ensuring consulting professionals are highly trained, capable, and accessible to assist clients with all of their business and organizational needs. He is current on technical matters and business objectives related to services provided by Bonadio Advisory and Consulting and maintains heavy involvement in training, service innovation, and talent acquisitions.
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