Media

During a presentation by a former FBI agent who had extensive experience investigating white-collar crime, a member of the audience asked, “If you were going to commit the perfect fraud, how would you do it?” The former FBI agent responded, “Well, first, I’d do it at a not-for-profit.”

Unfortunately, that was very good advice. Non-profits are generally more susceptible to these crimes because their financial controls often aren’t as vigorous as those at for-profit companies. In fact, just a couple of weeks ago, I received a phone call from the president of a non-profit who had recently discovered that the organization’s treasurer had embezzled all of the organization’s money. When Matt Lowe, a partner in my firm, and I met with several members of the board, they had one question for us: “How do we get our money back?” We wished they had come to us sooner with a different question: “How do we protect ourselves from fraud and embezzlement?” If they had, our advice would have been:

∙ First, get the belief that “it can’t happen to us” out of your head. Fraud and embezzlement do happen, usually by individuals who were believed to be loyal and trustworthy.
∙ Require checks and cash disbursements over a certain amount to have two signatures. All such requests should be accompanied by invoices or other documentation.
∙ Conduct a background check on new employees and volunteer leaders. This isn’t a sign of distrust; it’s a best practice all non-profits should implement.
∙ If your association is large enough, form an audit committee within your board to provide financial oversight. At smaller organizations, consider adding a CPA or other financial professional to your board to take on a similar role.
∙ Keep a log of every check that crosses the threshold of the organization.
∙ Periodically review all vendors within the organization to guard against fake vendor accounts.

Fraud and embezzlement is tragic on several levels. Aside from the obvious financial loss, it can also create anger over the betrayal, a public relations mess, a loss of trust among members and donors, and questions about the board’s management and oversight. Don’t let it happen to you.