“I was on the board of a national social justice organization for three years. The Development Director discovered that the “external-auditor-turned-internal-accountant” had been embezzling funds by stealing checks and using the “stamp signature” of the CEO. The day after it was discovered, the accountant shot and killed himself. He had also been embezzling from a church he volunteered for. The lesson I walked away from this tragic scene with was this — as a board member did I do everything I could to prevent embezzlement? Why did I hesitate in saying anything when staff suggested it was a good idea to hire our auditor for internal work because ‘he knew us so well’?” — Blue Avocado reader who asked to remain anonymous
Embezzlement — fraud committed by employees and volunteers — is especially painful in community nonprofits. Not only is real damage done to our organization, but we feel that our cause has been betrayed by someone we trusted and liked. We worry that donors and grantmakers will be less likely to give us money if they hear about it. And because embezzlement is so often kept quiet in nonprofits, we might think that we are the only ones to experience it.
The most common types of nonprofit embezzlement and how to deal with them:
- Theft of property, such as computers, cameras, art. Prevention steps: Lock it up. As it used to say (maybe still does) on the musical instrument cage at the Grateful Dead’s rehearsal space, “Locks keep honest people honest.”
- Theft of organizational checks. Another Blue Avocado reader told us that the CEO of a small foundation where she’s on the board would leave a few blank checks in the safe before going on vacation. The CFO used them to pay for his OWN vacations, recording them in the accounting system as as other, legitimate expenses: $300,000 worth. Prevention steps: Never have any blank, signed checks. Lock up checks. Have someone other than a check-signer physically open the bank statements and reconcile them, every month. Purchase fidelity bond insurance.
- Thefts of checks from donors or members: One community nonprofit, usually known by its acronym (let’s say “ABC”) had a staffperson taking donor checks made out to ABC, depositing them in a business account she had opened with the same acronym, and using organizational letterhead to send thank-you notes to the donors. The donors had canceled checks and thank-you notes: who’s to know? Discovered at $60,000. Prevention steps: Have two people physically open the mail together, recording incoming checks. In fundraising letters or membership renewal forms, ask donors and others to write out your organization’s whole name on their checks.
- Thefts of cash from special events: Prevention steps: Insist that everyone use a shared cash box or boxes throughout the event rather than their own pockets or envelopes until the end. Create an atmosphere of integrity by counting the cash box. Keep an eye out, and don’t hesitate to say, “Hey, I know it’s faster to make change out of your own pocket (like you just did) and turn it in later, but we’re supposed to use the cash box—it’s a pain but we’d better do it.”
- Improper checks or signature cards signed by a busy executive director or board member who doesn’t look while signing them. If you are that exec or board member, you can’t be expected to scrutinize each check and know from memory whether the check is appropriate and for the right amount. But you CAN: Make sure there is an invoice attached to each check, and an authorization signed by a designated staff member. Initial the authorization to demonstrate that you’ve seen it, and so that un-initialed documents can’t be substituted for the ones you saw. Occasionally pick out a large check and phone the relevant staff person to make sure the expense was authorized; not only is this a good check but word that you did so will quickly spread.
- Payments to fictitious employees, un-authorized raises, and non-submission of payroll taxes. Because payroll involves substantial funds it is a tempting place for theft, and because it involves so much detail it is often overlooked as such a place. Even small organizations should use a payroll service and have a copy of the payroll register sent directly to the treasurer.
“I was a middle manager of an organization where we discovered, after the CFO left, that the CFO had embezzled $33,000. He had opened up a bank account in the agency’s name at a local bank where he knew the employees. He told the ED and the board that he needed to re-do the signatures for an existing account; filled in the card where they should sign, and marked that only one signature (his) was needed to write checks. When the embezzlement came to light, the board refused to report this to the police or the insurance company. They were afraid they would be blamed.” — Blue Avocado reader
Five common (but unstated) myths about embezzlement in community nonprofits are:
- “It hardly ever happens to nonprofits so we don’t have to worry that much.” (Actually, it is more common than you think because it is so often kept quiet.)
- “Mrs. X is the most dedicated, honest, sweetest person I’ve ever met.” (Funny thing is that the only people who steal are people we trust. That’s because if we didn’t trust someone, we wouldn’t give him or her the easy opportunity to steal.)
- “Everyone who works here is really a good person.” (In my direct experience with people who have embezzled from nonprofits, they had all convinced themselves that they were “just borrowing the money temporarily,” making up in a small way for perceived under-paid work, or fulfilling the organization’s mission: “the mission is to help families and this is helping my family.” In other words, people who do bad things don’t think of themselves as bad . . . and as a result, don’t come across to others that way either.)
- “We don’t have enough staff to have financial controls.” Try these: In an all-volunteer organization, don’t have the treasurer be a check-signer, and have a copy of the bank statement given to the board president every month. In a one-staffperson organization, have the bank statement reconciled monthly by a board member. If you have an audit, insist that he or she recommend controls in writing.
- “Audits catch embezzlement and fraud.” (Actually, auditors explicitly state that an audit is neither designed to find fraud, nor an assurance that there was none. Auditors DO catch embezzlers, and having an audit may deter embezzlers, but they can’t guarantee that they will do so. In particular, it’s very hard to catch fraud that involves two employees acting in collusion, or a junior person going along (either knowingly or unwittingly) with a senior person’s misdeeds.
One more story
“I was one of the ones [board members] who wanted to keep [the embezzlement] quiet. I was afraid it would affect donors. But then on one of the conference calls where we were discussing how to deal with it, someone said, ‘If someone broke into your house and stole $250,000, wouldn’t you report it to the police?’ We ended up reporting it, and also issuing a statement about what happened and what we were doing to correct the situation. It was fine.” — Blue Avocado reader
Embezzlement is a more common and bigger issue than we may think. In the for-profit sector, it’s estimated that 7% of gross revenue is lost to employee fraud (Association of Certified Fraud Examiners report). (Imagine if we budgeted 7% of our budgets for fraud loss!)
Embezzlement not only hurts an organization, it hurts the people it serves and the community that supports it. We can’t expect to prevent it 100%, but a few simple steps can reduce its likelihood substantially. But perhaps the most important step is to set an atmosphere and climate of accountability. I’ll never forget the time when, as a PTA treasurer, I offered to reimburse a parent volunteer for $6.40 without a receipt. I thought I was being nice, but her face fell. I realized that I had sent a message — the wrong message — about accountability and ethics. Since then, as a volunteer, board member, nonprofit executive director and Blue Avocado editor, I’ve worked hard (not always perfectly) to set a tone of financial controls and accountability, and thus a tone of ethics and accountability to our constituencies.
See also: Five Internal Controls for the Very Small Nonprofit
Chance Cook says
I agree that preventing a crime like that can’t be done 100% but we can reduce its likelihood substantially. Non-profit organizations are meant to help people. Not get people rich quick.
Mia Evans says
Thanks for helping me understand that embezzlement means that it is a fraud committed by employees or volunteers. I guess it would be best to work with a charity compliance lawyer to ensure that you follow all the regulations when you want to push through with a nonprofit organization. It will save you from any lawsuits and ensure that you have all the documents needed to keep you from having legal issues.
kaleb mandrake says
question if I may, who do you call state wise if a Non Profit is selling stuff beyond the price of retail and only reporting what they want to report, I use to donate to an organization until I seen it first hand, they are all about money and their own pockets not the poor as they claim so if someone can point me in the right direction I would appreciate it 🙂
I was brought back into a NP after the current treasurer was “borrowing” funds. It might have started off innocent by them paying bills, as there were random deposits that didnt correspond to the monthly deposits from events. No one was giving them oversite, just took them at their word when they gave the monthly report. So when checks bounced they were all shocked. Clue #1 – statements going to personal address “for convenience.” Clue #2 – financial reports didn’t get finished in time for the meeting, and were never sent after the fact. Just given verbally off the top of treasurer’s head. Almost $10,000 later the checks bounced. They maybe have paid back partial after they got underwater, but we chose not to turn in… Turning in would result in arrest, spouse quitting a job to care for kids, no restitution possible. Working it out we set up payment plans, and when those were slow, we requested that they took out a loan on their vehicle. We ended up getting back about 90%, vs nothing and ruining a family.
Yes, trust without separation of powers is the #1 “cause” of problems.
Where is the accountable? This sets a tone of bending core ethics for sure – 90% or not!!
Charity Dell says
Thanks for this informative article! I never thought I would need its advice, but here I am
with a crisis in our tiny non-profit, caused by the treasurer treating our bank account
as her “personal cash cow.” We’ve already taken steps to close the account, and
we are determined to prosecute her to the fullest extent of the law. I just wish I had
known of this article last year! But that’s OK–I read it “after the fact” and it is good
to know that there are tools to address these problems. It is also encouraging to
hear other charities’ “tales of woe” and how they developed strategies to overcome
the effects of theft and embezzlement on their non-profit organizations. I am glad
Blue Avocado and other websites exist to help us carry out our missions with
I worked as a staff member, and helped blow the whistle on our executive director, who was embezzling significant funds. It’s funny, you would think that working at a non-profit would teach about the inherent good in people. This board opened my eyes to the exact opposite. I thought that the board would rush to our aid, but they shifted uneasily between trying to find fault with the whistle-blowers and paying off the criminal ED to keep it quiet. As soon as they were able to oust the criminal ED, they instituted abusive policies and an incompetent/abusive new interim ED to attempt to force out the brave few who spoke up to save the organization. Stories soon emerged in the local paper about the rest of the board and their questionable financial practices. Glad I got out when I did! It’s not always a fairytale ending when you try to do the right thing.
I have a question about fraud. Does this include someone using a non-profit’s tax exemption to buy personal items? I have a co-worker who will go on “errand runs” and routinely buys a bunch of personal items just so she doesn’t have to pay sales tax on them. She’ll go to the store and buy one bottle of aspirin and on the same receipt I’ll see clothes and other personal items tax free. She’s only getting reimbursed for the aspirin from our employer but still isn’t paying tax on the other stuff. Is she committing a crime? I really don’t want us to get in trouble with the IRS.
I am not an attorney nor a CPA, but this individual should not be allowed to make personal purchases with the benefit of your nonprofit's exemption benefit. It could risk your nonprofit's status. Just say NO!
Is there anything else we can do???
We just removed a bookkeeper and treasurer From the Board because of embezzlement and fraud. We allowed them to resign and each wrote scathing resignation letters. Should we respond point by point to keep our reputation extremely pristine – we were told if we dont respond and should questions from donors arise in the future, we will not be able to set the record straight.
They had a very cozy relationship- not sure who was cozying who or if they just circled the wagons to keep the rest of the board from getting information. While it has left our small non-profit in a tough situation, at least we stopped their malfeasance.
We are an all volunteer organization. The Treasurer was refusing each board Inquiry and the bookkeeper kept referring us back to the treasurer.
The Treasurer was paying her housekeeper and friends and listing it as donations to the organization for tax write offs. The bookkeeper embezzled our computer, submitted phony repair bills for the computer and took our installed software. She sits on the board for a similar organization that is a start up trying to obtain 501c3 designation, so we suspect our property was given to them. She neglected to list that affiliation on her resume.
We will have to do a forensic audit, buy another computer, software- and have to cancel several accounts available to non-profits to keep them from utilizing our EIN, our IRS designation, and our tax exempt status, and change a gazillion passwords.
Put your policies and proceedures in place and follow them regardless of the excuses. And Board members – it is up to you to stay vigilent.
I'm not a lawyer, and much here also depends on your knowledge of the people involved, which of couse I don't have. In my view, there's no reason to write a letter to them. They will likely comb through it looking for someone that could be construed as the basis for a lawsuit. You're not going to convince them of anything.
What I would recommend is that you write a letter to the board and read it aloud or distribute it in an executive session. That way it is part of the official — but un-published — record.
You might also consult a lawyer who is familiar with nonprofit issues. My two cents. Hang in there. Jan
This sounds insanely familiar to me. Right now my husband & I are fighting the same corrupt battle.
Please contact me, we might be able to help you each other & in return help others experiencing the same horrible thing.
Like this plan of action…
The treasurer of our church has been writing and signing checks to herself without proper authorization of the Trustee Board. Has she committed a crime?
Just look up the meaning of the word embezzlement, and I think it's time for action. I would recommend bringing together a team of board chair, key church administrator and an attorney to collect more information and determine next steps. Good luck!
And it continues to happen. Only this time with coverage in the media…
This continues to be one of my all time favorite Blue Avocado articles. I go back to read it every so often since it gives me such peace of mind. Yes, I also caught the executive director stealing (absuing a credit card with no oversight), making uneccessary expenditures during a time of severe budget cuts and firing all those with finanical knowledge as well as changing auditors.
Sure I documented and tried to tell people before AND after I left. This article reminds me that sometimes — even when you know the truth — the board just does not want to listen…and the buck truly stops with them.
You tell the truth. I only hope I live long enough for the truth to set me free.
I am currently the Finance Coordinator at a non profit organization.I started as a Administrative Assistant and worked my way up. I have made the security of the finances a priority for the close to 5 years I have been with the organization. Recently our Finance Committee changed our check signing procedure to give more authority to the Executive Director and myself. This seemed like a good set up considering currently we are always waiting on Board members to sign checks and we have a good internal control system. Within the past month my co-worker and myself turned information in to our Board of Directors that show our recently hired Executive Director has turned in false expenses for reimbursement. For example a receipt that was said to be for a diner conference with two grant representatives but per the representatives they never went to diner with the Executive Director. The Board decided to keep the Executive Director which caused two Board members to resign. I am now uncomfortable being involved with the finances not to mention the awkward work atmosphere. I am planning my exit from the organization but feel I am failing my moral obligation to organization. We have over a million dollar budget with great programs that are helping make a difference in our community but the fear of how this incident would reflect on myself and the fear of it happening again seems to have too much risk for me. Any advice would be greatly appreciated!
You are in a tough spot. You did the right thing by bringing the problem to the attention of the board. Unfortunately, you can't control the actions of others. My suggestion is that you write a letter detailing the problem and send it to all members of the board as you depart. After you leave you might consider sending the information to one of their important funders.
I understand what you're saying about the organization doing great work, but an executive director who is lying and messing with the finances will continue doing so and eventually bring the organization to ruin.
I once had a newly hired employee who established "accounts" for such as items like pizza delivery and cell phones in the NFP’s name. Her job responsibilities included opening and directing in-coming mail, so she was able to pull bills for the accounts she fraudulently created. Her scheme might have gone on unnoticed but she also had a poor attendance record. So one day another staffer opened the mail and sent the fraudulent bills (mostly 2nd and 3rd notices) to the acounting department, and that’s when this all came to light. While I was firing her for misuse of agency resources, etc., etc., another staff person was assigned the duty of cleaning out her desk — and we discovered documentation for whole lot of other fraud. She was eventually prosecuted for this larger fraud she perpetrated. We never lost any money because of her schemes but 3-4 vendors she conned did. We were happy to see her taken to account for a career of deception and theft. We were just one of her victims — she also scammed for-profit businesses — car dealer, apartment complex, etc.
I have since learned that one warning sign that theft might be occuring is the financial person who never takes any time off — s/he has to be present to cover his/her tracks. If our thief had had a better attendance record, she might have done some real damage.
I am an Executive Director of a NFP that has a 3 member board, consultant and bookkeeper all controlled by the board president. I have some concerns with their spending. The president of the board is also a paid consultant, in which case he/she has decided how many hours he/she works, what our needs are, and what his/her hourly rate is. It is high, believe me.
The bookkeeper is her friend and paid employee. So is one of the board members. All of the concerns I have are directly related to their actions.
To give one example, when they travel to Mexico, where our project is located, they stay in nice hotels, eat well, and then accept 200 dollars a day in addition to these expenses. They do not need the 200 dollars for rental cars or any other incidentals. They have me put all expenses on the NFP’s debit card.
When I asked, they said, since the board president sent an email stating that’s what they would receive, then it is policy. I don’t believe this to be true… at least it shouldn’t be.
And when reading above, I see that audits don’t necessarily uncover these types of things. What would I do in this case? Who do I turn to and how do I request an internal audit or compliance audit, when to do so could mean my termination?
And in our Whistleblower policy, it states that I would report to the Board President or staff would report to me. What’s the next step? I simply want accountability to staff and board members, and I’ve already recommended adding independent board members. It was not accepted very well.
If anyone has any insight on this, Please advise.
Is it embezzlement to take funds from a non-profit to pay for a volunteers illicit drug use or to buy expensive coffee machines for friends without reimbursement?
Wow. I thought my former organization was the only one that had a problem with an ED who took money because he "deserved it." Since he was underpaid for all his years of efforts, he rationalized he was somehow entitled to unspecified amounts of cash.
Now I see this is not actually not just our own dysfunction, but some sort of rampant nonprofit disease and dangerous sense of entitlement. While I don’t want to downplay that is unethical and laughable, it does feed off our sense that we are not being paid enough and are "owed something."
The problem begins when when everyone is working together and believes in the mission there is a spoken, but vaguely undefined, agreement that although you are not being adequately compensated right now, in the future when "the good times roll", when "our ship comes in", yadda, yadda, the organization will make it up to you. I always thought it come in the form of time off, but when the future came there was no more time than there was before…
Well, this doesn’t work because 1. this undefined promise of future compensation creates an expectation of staff "equity" in the nonprofit. But, workers don’t have equity– they are employees and the organization does not own them future, undefined resources. This expectation and attitude of equity creates conflict between managing the organization to achieve mission and managing it to pay back the "debt" to staff.
2. When the money really does come in there are immediate needs for it so diverting the cash to the old-timers for what has now become abstract past sacrifices seems unfair to the new staff who are understaffed, unpayed, and don’t see the money being used for capitalization and current needs.
The old timers see it that they built the organization, put in their time, sacrificed their health, their automobiles, their life and now they want their due. The newbies see them sucking off vitally needed funds, mismanaging resources, putting themselves first. They believe THEY are the ones who are working hard and making the organization what is right now. In fact they are working too hard since they are underfunded.
These vague past sacrifices from the legendary past don’t seem as visceral as they did to the original family when they organization and the cult of the organzation was launched.
Bottom line, it’s a bad, bad, bad idea to give your staff hopes that they will cash in on future largesse. Maybe wages and benefits will improve in the future, but that’s the most they should expect. Make it clear they have to do their jobs for the wage they are paid because they want to, without any expectation of future benefits.
Hope that made sense.
Very good article with a lot of practical advice and support simply by the talking out of known instances and experiences.
We have a President and CEO of one of our most prominent non profit organizations that has been revealed by former employees and now a member of that organization for multiple abuses of the organization’s funds for what is now the third time.
The problem of not being able to find evidence is only because the audit’s back in 2005 and previously in 2002 and 2003 were done by city officials who were only focused on taxpayer revenues and not the entire organization.
With an entrenched in power head of the organization, utilizing a hand picked board, who allowed(allows) unsurpassed and unheard of power to this individual, the dues paying membership and the unsuspecting general public attending fund raising events, had/have no idea the global reach this individual has inflicted upon the entire region.
Our town is prominent in the US resort industries and once these audits and acts were/are buried, and then remain artfully buried from the public eye, there is little hope that any knowledge whatsoever of the suspicions surrounding the head of this organization will ever be seen by the members and the public.
The multiple former employees and now likely this former member are validated by many who are aware of these acts but the board that governs this individual remains filled with apathy and in a number of cases, fear of reprisal from this individual.
In researching the non profit”s governship on both state and national levels, there is absolutely no ability to easily locate where to report abuse within the organization.
This organization has a national presence and literally most every town in the nation has one. Yet, there is no abuse oversight of the individual boards.
There also does not appear to be any governing entity, other than tax governship, that oversees all 501 C-3 or affiliated status organizations, on the level of the general public being able to to report known or suspected abuse .
I think a very worthwhile endeavor would be for such oversight to be set up and/or sites like this to post links of known places where help could be found.
Who are they?
An all-volunteer non-profit I’m involved with is currently having a conversation about steps to take to prevent embezzlement. When you write “don’t have the treasurer be a check-signer” do you mean signing checks within the organization or as a signer at the bank? I’m finding advice that says to have the treasurer be a signer at the bank alongside the executive and president: http://nonprofitmanagement.suite101.com/article.cfm/bank_accounts_for_nonprofits Thanks in advance for anyone’s thoughts.
My opinion is that the treasurer (volunteer or staff) should not be a check signer and should not have the authority or access to make changes to your bank or investment accounts.
Presumably, that’s the person who reconciles the accounts, so you want a clean division of responsibilities.
People should also be aware of the relationship between embezzlement and gambling addiction. Many times gambling addiction is the cause of embezzlement.
My agency, Jewish Family Service of Buffalo and Erie County (New York) operates the only gambling recovery programs in several counties in Western New York. Our agency is not for or against legal gambling. We advocate for resources to provide treatment, education and prevention.
Of additional concern is the number of gambling venues operated by nonprofits to raise money without understanding the implications of people with problem gambling issues. I am not advocating that nonprofits stop this form of fund raising. I am advocating that nonprofit fundraisers are aware of the signs of problem gamblers at their venues and provide
information about the warning signs and where to get help. It is our social responsibility.
Thank you for the opportunity to share my thoughts. Marlene
According to th ACFE:
10% of all people never steal
10% of all people always steal
80% of people steal given the right motivation
Our economy provides the motivation.
An executive director that does no oversight provides the opportunity.
Oversight can be a very simple matter requiring very little time and certainly no debit/credit skills. It only takes some common sense.
If you’re an executive director, do your bookkeeper, your organization and yourself a favor.
Go to www.embezzlement.com and take a look at 12 simple embezzlement deterrence procedures (not your usual laundry list of "open your bank statement") and learn how to protect your organization and YOURSELF!
this is an advertisement and has not business being included in this string.
The problem of nonprofit embezzlement far exceeds that which is illustrated in the thoughtful article. The New York Times on March 29, 2008, as well as other publications such Nonprofit Imperative, have indicated that the overall cost is put at $40 billion or some 13% (vs 7% in the for-profit sector) of the roughly $300 billion given to charities.
Most want top deny that this is a problem, but studies of confidence in the charitable sector point this issue up.
The leaders of the sector will blame the sector’s distress entirely on the economy, but the public knows better… and has for years. Contributions (adjusted for inflation) have not increased in that time.
The billions lost on fraud in the nonprofit sector is a problem, but I would caution comparison to the for-profit sector’s figures. For example, I have many friends in the advertising and financial biz who openly benefit from expensive trips, dinners, retreats, spa treatments etc. (are you listening AIG execs with your $23k spa treatments). None of this gets counted as fraud in the for-profit sector. Just business development.
Want to make other nonprofits aware of a vulnerability I unfortunately just managed my way thru. Having just taken over a new organization, I was still in my first year of "kicking over the rocks" and finding out what was underneath. Nothing in my twenty plus years of experience had prepared me for the out of state call from the Financial Crimes Division of the State Police(5 states away) that i received. It seems a former employee was working in collusion with a relative in the distant state and making copies of our organization’s donor’s checks and forwarding them. There, they were being scanned into a computer, manipulated just enough and carefully reproduced and recashed as part of a larger fraudulent check cashing ring. This had been going on for two years before I came. When the detective busted up the ring and got a search warrant, they found boxes of our donors checks…many waiting to be "cashed"…others waiting to be scanned.The immediate reaction to not want to "tell" your donors is something I think everyone goes thru – but knowing that our donors trust ultimately rests in our hands means we absolutely had to be honest. No question. We notified every donor by certified mail, followed up with personal phone calls, put in background checks on all employees, and reviewed our policies on how we handle donor checks and how they are secured. While it is impossible to protect against every vulnerability, increasingly checks and balances need to be reviewed and revised and always watched carefully.Our donors have been wonderful. Many have experienced identity theft and expressed appreciation for our efforts to reach out to them Taking the high road and dealing with this with integrity and honesty was absolutely the best policy for our organization.
This is a very important issue and everyone who is responsible for a nonprofit, either on staff or as a Board member, needs to be aware that embezzlement happens – you’ll note that I didn’t say "could happen" it does happen. If it is just a pencil taken from the office to be used at home or thousands of dollars taken for personal use – both are embezzlement and cannot be overlooked. Nonprofits have a special responsibility to the public because of the trust that the public gives them. This means we must be overly diligent in protecting that trust and if we find that anyone associated with the organization is embezzeling anything we need to act immediately and decisively.
Under types of embezzlement you forgot a really big one Credit Card fraud. I have personally seen company cards be used for personal expenses. Everything from food to hotel stays. Its one of those detail items that board members don’t look at and I have seen even the CEO of orgs. take advantage of this. A big warning sign is the person always talking about how they haven’t had a raise in years or constantly discussing their personal financial struggles. If people don’t feel like they are being appreciated or paid under what they think is fair they will start looking for ways to tip the scales in their favor. Sad but true.
Sad to say I frequently feature nonprofit embezzlement cases in my blog (http://www.nonprofitboardcrisis.typepad.com/) to essentially try to identify what went wrong on both the governance and management levels. Of course this year’s big story, making national news, and most sad is ACORN where nearly everything in the system went wrong or was broken to begin with. And the ACORN story is not over — the Campaign for Human Development just announced that it would not be giving its annual contribution of $1 million dollars citing the embezzlement as one of the two reasons (the voting "fraud" being the other). Sad to say, ACORN is a great organization that just doesn’t or didn’t have it all together. But the bottom line to embezzlement – it hurts the whole organization and can have really long consequences.
Thanks. Mike Burns, Brody Weiser Burns.
Mike, thanks for this comment, and to go just one step further: embezzlement can hurt not only the organization, but its cause, and the whole nonprofit sector.
At one np I worked at, the CEO only hired intimate friends or employees from his other job to be board members. Most of them never showed up for the board meetings, and were present "telephonically" in theory.
His CFO, who wrote the checks, another personal friend, refused to balance the books, refused to provide financial statements, and used a signature stamp from a former board member who had left three years before. Many highly suspicious financial dealings occurred, including some flat out fraudulent dealings.
I called the California Office of the Attorney General and explained what I knew and what I saw, and that I had some of the evidence. Basically they said that there was so much fraud and corruption going on in the charitable world that I would have to provide them with the entire case, all evidence sufficient for a conviction, signed witness statements, etc, before they would bother to read it.
What an eye opener.
I am no longer in the charitable world and I highly discourage anyone from ever contributing unless they are on site to ensure the funds are being used appropriately.
I think this article is needed and it is well written. Two further points bear mentioning:
One universally recommended simple control is for a trusted board person (e.g., a board member who serves as Treasurer but does not sign checks) to physically open every envelope that comes in from the bank. Otherwise, the embezzler has an opportunity to doctor or delete bank records and notices, to cover their trail.
REPORT embezzlement to law enforcement authorities, and cooperate with the investigation. This may help prevent another nonprofit from being taken by the same criminal. (One of the really sad facts is that these criminals often move on freely to embezzle from others, simply because their victims do not want the negative publicity associated with embezzlement.) Also, the district attorney will typically ask for "restitution" as part of the sentencing or plea bargain for the embezzler, which means the nonprofit may get some or all of its money back.
As a Director of a Non-Profit ($300,000+), I know the BUDGET. Income vs Expense is top priority to manage. Monthly reports are to be looked at, and if income is not at projections, this is your first sign to find out WHY?If those having issues of mega $ missing, you need to be fired (and roll that $ back into system). How dare you promote a service & receive donations for your business & not know where the deposit trail ended.
One of my first jobs was at a very small but prestigious theatre company. After I had been there about six months, our managing director told me (and the other person on the staff) that he had discovered that our artistic director had been keeping the company’s cash (payments for rehearsal room rentals), paying his own bills with company checks, and had tried to get the managing director to collude with him in keeping a finder’s fee for a building that he sold for the company.
Morale plummeted after this came out and was only made much worse (much worse) by the fact that it took the board three months to fire him. The president of the board lived in California, and none of the East Coast board members could be persuaded to fire him, the embezzler, though they were in the same city. When the board president finally came to fire him, she allowed him to collect unemployment.
The whole experience was awful, not least because of the ineffective leadership of the board.
Thank you for Blue Avocado – especially times like these, it’s heartening to remember that we’re not alone in the struggle!
I am on the Board of a large organization that dealt with a major case of fraud, perhaps into the millions. We brought in a "Resolutionist" who did everything they could to justify what was taken. This person is a highly skilled investigator and, given their approach, their case for the remainder of the funds was bullet proof. Ther was no way to argue bias of any kind, retribution, etc. Of course it all went legal and this careful approach proved its incredible value.
I used to work for an organization called ______________ in Syracuse, NY. We were a non-profit that provided various serivces (mostly job placement and sheltered workshop activities) for people living with disabilities. After a couple years with the organization everyone was suddenly laid off in one day. It turns out they were ‘cooking the books’ so to speak and the finance director was embezzling money. It was never officially proven, but everyone knows what happened. The state eventually stepped in and rehired veryone, temporary taking over until everyone could find employment/assistance with other agencies around town.
We had a dramatic situation a few years ago where a trusted employee had been working under someone else’s SS# and forging statements confirming her rate of pay so that she would qualify for assistance/government support. We have become much more conscientious of background checks, checking I9 ID and confirming identity.
thanks for the newsletter…it is always helpful!
I’m sure you have heard the story of _________, an environmental organization in Southern Oregon. The ED set up a secret bank account, applied for grants, told the board that they didn’t receive them and used the money for his two wives. Luckily he was caught. I think changes since then would prevent this:
1) Banks now require more than one person to set up account
2) Foundations communicating directly with board
I am a past president and current board member for a local social support group (We provide social support for families of twins and higher order multiples, and advocate educationand research as a member club of the National Organization of Mothers of Twins – NOMOTC.org). We have a membership of sixty mothers of multiples and an all-volunteer, seven-member executive board. We recently discovered that during preparations for a fundraising, a member charged with soliciting donations had been taking advantage of our sponsors’ generosity. She accepted a large electronic item on behalf of the club which she kept for personal use, purchasing a less-expensive product to present in its place, and continued to use requests on club letterhead to solicit items for personal use after the event was over.
Imagine the board’s distress as we discussed how to confront the member, whether to notify the companis which we knew had contributed, and worst of all – wondered how many companies had "donated" goods which we as a board might never know about! It hasn’t happened yet, but we dread approaching one of our loyal benefactors for their annual gift only to learn that they "already gave to the nice lady last fall . . . " Even worse, she didn’t see anything wrong with her actions, as the club still "ended up ahead"!
I know most of the issues you cover focus on larger organizations, but even small groups (we have an annual budget of less than $5,000) experience financial subterfuge.
Thank you so much for the newsletter, I find something enlightening in each issue.
I serve on the BOD of a nonprofit and there was a case of embezzlement. It was eye opening to me that someone I met with and knew would engage in this. The organization lost a relatively small amount but it did change the way I think of things.
I’m [also] the ED of a nonprofit and it made me think about the way we do things. I try to make sure there is no temptation put out there to tempt staff.
I don’t that most people think, "Gee,I’mgoing to steal money from the nonprofit I work for" I think it starts small and snowballs. The problem with any of these cases is typically there is no oversight and then small lapses grow into big lapses.
Check out the Sat. Nov 1 2008 issue of The Birmingham News. Indictment of John Katapodis on 96 counts of fraud and embezzlement from a nonprofit he was managing. Incredible misappropriations of funds for personal use.
I can remember reading that when it was released. Amazing story and like you say, incredible funds misappropriations.
While most of us would hope that staff at a nonprofit would be less prone to theft, this is a mere hope and management and the Board of Directors needs to take steps to be sure that background checks are done as part of the application process and that the organization is adequately insured to cover employee dishonesty.
In 15 years as ED/CEO of a large local nonprofit I had two experiences. One as fairly simply – a payables clerk who wrote herself checks and forged my signature. We detected (and she disappered) the moment the bank statement came (good thing we followed our procedures!) Bank made good on funds and we finally found her and prosecuted although she only got a slap on her white-collar wrist.
The other was much more exciting, in early 2001, and involved a young man from overseas, the sudden death of an employee and then the young man both opening accounts using the deceased’s identity and stealing corporate checks which he was supposed to be mailing (and somehow getting a bank to cash checks which were payable to, for example "American Express."). Quite a story.
When I was th CEO of a NFP, a member of the public alerted me to the fact that my Director of Human Resources had embezzled over $20K from a former employer.
I contacted that employer who verified that this was indeed true. However, they did not press charges in exchange for the employee re-paying the money. Hence,no charges, no conviction.
Everyone turned a blind eye to this, especially the Board, citing that this happened "a long time ago."
Whenever there is corruption at the leadership level of an organization, the entire organization becomes suspect.
Very good article and an important one. In my stints as an interim ED, I saw too many instances of sloppy and inadequate controls. The results were several instances of "petty theft." When controls are lax, I wonder how much low-level theft goes on that never rises to the level of a big embezzlement.