As a business ethics speaker, I am witnessing what appears to be an increase in the number of frauds – mostly financial – that seems to be creeping into most organizations – whether for profit or not for profit. This is not unexpected as hard economic times create desperate actions. One thing for sure, whether you are a non-profit organization, church or association, you’re assets are just a vulnerable as any other 
organizations. The only difference I see is that in touch times it is often more difficult to grow your assets since you rely on contributions (in large part).
I read an article written for the Chicago Tribune that was outstanding. The author was
Be professional. Board meetings are not social events. Attorney Lara Anderson stated, “You are the board member of a corporation, and there are formalities you have to go through and laws you have to follow.”
Board members have a legal responsibility, called fiduciary duty, to act in good faith, make informed decisions and avoid conflicts of interest, she said.
Make a money plan. Attorney Gabriella Comstock advises associations to adopt a formal financial policy that tells how money will be handled and invested. You might include such requirements as a yearly audit, two signatures on every check, and that reserve money over a certain amount will be put into a certificate of deposit.
Such a policy “leaves a paper trail that shows you were trying to act responsibly,” she said. “It gives insight as to your thought process and shows you didn’t act on a whim.”
Be involved. Every board member needs to know how the money flows, not just to avoid embezzlement but to ensure sound financial decisions, said Comstock.
Audit the books. Many experts advise yearly financial audits, and some declarations require them. It’s also good to conduct an audit after developer turnover or changing management companies.
Get bids. The law doesn’t say you have to bid your contracts for goods and services, but you’ll make better decisions if you do. Study the bids—the comparisons will be enlightening, said Anderson.
“If one bid is way up and another is way down, find out why,” she said. “Maybe one is a licensed contractor and the other is not. Maybe one has been in business for 30 years and another is just starting out and running a business out of his garage.”
Know your manager. By law, managers cannot have prior convictions for forgery, embezzlement or similar offenses. They can’t co-mingle your money with that of other associations they manage. But it’s up to you to check. If you’re hiring a manager, interview several, follow up with their references, and ask what financial controls they have in place, said Anderson.
Spread the responsibility. Accounting tasks should be shared between management and the board, said Majewski.
“Make sure whoever is issuing checks and reconciling bank statements are different people,” he said. “Whoever is receiving cash and posting receivables should be two different people.”
Learn to recognize red flags. Majewski offered several: serially numbered documents that are missing, lots of cash transactions, photocopies rather than originals, second-party endorsed checks, duplicate payments to vendors, vaguely worded invoices and lavish personal spending by someone responsible for your money.
“Ask questions,” he said. “Don’t stop until you get an answer that satisfies you.”
The advice offered here is priceless. The potential for loss can be staggering and devastating for a small organization. As an example an acquaintance of my disclosed to me that someone he knew had taken most all the funds from a youth soccer league and spent it on lifestyle maintenance. As he asked the question I knew that he wanted to know more than just to satisfy his curiousity. Turns out the theif was his son-in-law. Scared, he didn’t know what to do.
No doubt the scenario I just described is going on in hundreds, if not thousands, of cases around the country. I state the above to serve as a warning…take precautions and know that lack of trust is the first step to eliminating opportunity and opportunity is one of the foundations for fraud.
You can stop fraud by removing the fuel that feeds it.
By the way, if your organizations assets have been misappropriated, feel free to comment on how the misappropriation took place. Your comment may save others. You can help.
My husband recently served on a non profit board for a local soccer association. What we saw was mindblowing. His first dealing he was presented with a contract to pay the treasurers husband as a coach. No other coaches at the time were paid and she was to say the least pissed when my husband simply said they should have a process in place for hirering coaches before it is just given to her husband to ensure it is fair for all coaches. This is where our hell began. He only served a the program director for a couple of months but during that time, her husband was paid as a coach, paid to do grass repair, and when he resigned he was promoted to program director. He is now the one who approves the checks she writes. It is amazing to me how difficult it is to report this stuff. Can anyone help?