There’s only one thing stronger than all the armies in the world,
And that is an idea whose time has come. –Victor Hugo
Accountability and transparency are ideas whose time has come. The best tools for building accountability and transparency within an organization are (1) providing oversight, and (2) segregating duties so no one controls a transaction from beginning to end. In organizations, where a few people control financial processes, board members and Executive Directors must rely more on oversight than on separating duties.
Someone who is determined to steal, WILL find a way to steal. You can’t prevent fraud 100% but you can minimize risk by being proactive – by building accountability and transparency into your culture and your financial processes.
Unfortunately, embezzlement in non-profits is as common as a good cause. Take for example: Port of Hope. This organization has treated over 25,000 low income and indigent alcoholics and addicts throughout Idaho since 1971. It is a non-profit organization that provides a valuable service few other organizations can or will attempt.
Barry Meyers, Port of Hope’s President/CEO since 1978, was devastated when he discovered two long time trusted staff members, a mother-daughter bookkeeper team, embezzled almost $1.5 million from the organization over five years. The mother is serving a 41 month prison sentence to be followed by five years of probation. Her daughter received a sentence of five years probation.
Port of Hope didn’t have a pot of cash just waiting to be stolen. The bookkeepers had to resort to creative means to separate Port of Hope from its hard earned revenues. Specifically they; (1) neglected to make employee withholding and tax deposits to the IRS and stopped paying vendors, (2) destroyed IRS notices and overdue bills from vendors, (3) created bogus financial statements using the logo and format of Port of Hope’s accounting firm. This subterfuge allowed the mother to use Port of Hope funds to pay off $1.2 million in personal credit card bills over five years.
To make a bad case worse, the IRS does not just forgive organizations that fail to remit payroll withholdings and taxes. As the President/CEO and the executive responsible for Port of Hope, Barry Meyers is personally liable for repaying a portion of the amount due to the IRS. His monthly IRS payment exceeds most people’s mortgage payment. He’ll be writing a check to the IRS every month for ten long years.
To paraphrase Confucius, there are three ways to learn wisdom:
- By reflection, which is the noblest
- By imitation, which is the easiest
- By experience, which is the bitterest
Barry Meyers understands the pain of gaining wisdom through a bitter experience. In his words: “My biggest error, which is probably a factor in most embezzlement cases, was trusting these two people and believing them when they said that we were current in our deposits to the IRS and the payments of other accounts payable.”
He goes on to say, “The biggest thing I learned from this terrible experience has been that yes, you have to trust employees to some degree but you also have to have procedures in place to verify that what they say they are doing, they are in fact doing.”
Accountability is an idea whose time has come. Enhance accountability in your organization by keeping an eye on the financials. Here are five tips and procedures for doing so:
- Review all bank activity, including cancelled checks, at least monthly.
- Verify that payroll withholding deposits are made timely.
- Require that invoices, timecards and other supporting documents are attached to checks before signing.
- Have the accountant drop by at least every few months to review and analyze transactions in high-risk areas.
- Keep in touch with the banker, key donors and key vendors to build rapport and let them know whom to call if there is ever a problem or question about the organization.
Trust, but verify.
Denise McClure brings over 20 years of experience in public accounting, business management and non-profit board involvement to her work as a Certified Public Accountant (CPA) and Certified Fraud Examiner (CFE). Her business, Averti Fraud Solutions helps businesses and non-profit organizations become more profitable, secure and efficient by creating accountable and transparent work environments.