As with many other nonprofit organizations, unions are particularly susceptible to fraud, corruption, and theft. This vulnerability often stems from inadequate internal financial controls and the fact that unions tend to manage large sums of money. In March of 2024, the House Committee on Education and the Workforce sent letters to 12 separate unions citing multiple examples of corruption in recent years. These instances of fraud—perpetrated primarily by union officials—include misuse of pension funds, embezzlement, wire fraud, money laundering, bribery, health insurance fraud, labor racketeering, converting funds, and more. To prevent such incidents and the financial and reputational damage they incur, unions must establish strong systems of internal financial controls.

Below is a list of preventative measures that union leaders can take to minimize the risk of fraud and corruption, recommended by the House Committee on Education and the Workforce and the Office of Labor-Management Standards.

Fraud Prevention Measures

1. Engage a third-party auditor to independently assess your union’s financial statements and compliance with regulations.
2. Provide appropriate training and education to union employees to reinforce proper accounting standards.
3. Establish internal reporting mechanisms, such as a hotline for reporting fraud.
4. Create clear disciplinary policies for fraudulent activity.
5. Require multiple layers of approval for purchases, such as double signatures on checks and other payments.
6. Enforce segregation of duties to ensure no single person has too much control over a given financial process.
7. Issue receipts for member dues and maintain records of dues payment status for each member.
8. Maintain receipts and disbursement journals to record all cash received and spent by the union.
9. Deposit dues and other funds regularly to the union’s bank account, identifying each deposit with a set of receipts in the union’s receipts journal.
10. Establish a clear understanding of the salaries, allowances, and expenses to which union officers are entitled.
11. Require prior authorization for large or unusual transactions.
12. Require full financial reports from the financial officer at each membership or executive board meeting.
13. Form an internal audit committee (union trustees) to conduct regular reviews of the union’s financial records. These periodic internal audits should include bank reconciliations, reconciliations of receipts with deposits, examinations of canceled checks, confirmation of documentation (invoices, bills, etc.) for all expenditures, and other measures.
14. Regularly review internal controls for effectiveness and update these procedures if necessary.

Partner With RBT CPAs to Prevent Fraud in Your Union

Don’t let your union fall victim to fraud or embezzlement. Our team at RBT CPAs is here to provide reliable outsourced accounting services for your union, conduct third-party audits, and offer additional guidance to help you prevent fraud within your organization. Give us a call today to find out how we can help you safeguard your union’s funds and reputation.