When thinking about all the exciting plans you have for your chapters, fraud and embezzlement policies likely don’t jump to the front of the line. Yet you can‘t help but feel a pang of anxiety when reading the headlines of another seemingly infallible organization collapsing due to malicious activity.
It’s time to shake off the “it would never happen to us” mindset. In the end, the time spent organizing prevention strategies will be less costly than the legal, financial and reputational damage of the fraud crisis.
In the first post in our Chapter Rescue series, we covered financial mismanagement caused by risk factors like innocent incompetence. Not so innocent are the acts of theft, fraud and embezzlement. Are you prepared to assist your chapters in a financial fraud situation?
Response to Chapter Financial Fraud
Uncovering fraud or theft at a chapter can usher in a wave of emotions: confusion, anger, and even downright panic. With a response plan ready for this worst case scenario, you can show your chapter that you are here to help them right the ship.
The first step is to enlist the expertise of your accounting professionals to audit and review the situation. After you have a better picture of the damage, start seeking legal advice. It’s also important to get in contact with your CPA or tax attorney to see if it’s necessary to report the fraud as a diversion of assets on the chapter’s Form 990.
Along with the financial and tax implications, your response should include a communication plan for both the chapter and National brand reputation. In today’s world of social media, news travels fast. Looping in your communications or PR team from the beginning will ensure everyone feels comfortable responding when asked about the situation.
Prevention Strategies for Chapter Financial Fraud
Even with training and procedures in place, you can’t rule out the chance for fraud. There are, however, steps you can take to minimize your chapter’s risk.
Ask yourself if your chapter leaders would be comfortable seeking you out for help. They should feel confident you are ready and able to respond appropriately. Let chapters know that if they see something, they should say something and that they will be protected from repercussion. Establishing a whistleblower policy will ensure chapter leaders who report are shielded from retaliation. You can also consider an anonymous hotline run by a third party that can be used to report unethical behavior.
While financial policies and procedures may not sound warm and fuzzy to chapters, in the end having tight guidelines to follow will make them feel more secure. Here are some items to consider adding to your policy:
- Establish term limits for chapter Advisors and volunteers.
- Require 2-3 representatives to have access to review online banking
- Provide technology that can automate bank reconciliation and have it reviewed by chapter leadership on a monthly basis.
- Separate financial functions such as handling from record-keeping or purchasing from payables.
Virtual Banking Platforms to Minimize Chapter Financial Fraud
It can be daunting to think about overseeing these prevention strategies for all of your chapters. Consider an online banking platform that can automate these functions for you and your chapters. An automated platform can minimize financial risk for chapters and take some of the administrative duties off National.
A virtual banking platform eliminates the burden of reporting while at the same time provide fraud controls like spending approvals and notifications. Consolidated platforms have one master bank account for National that is divided into separate virtual bank accounts for each chapter. Chapters can interact separately while also giving National the ability to monitor accounts for fraud red-flags.
Alternatively, you can choose to build up the resources to manage chapter finances at National. Chapters may see this as a loss of control, so it’s important to provide complete transparency and adequate response times to payment and information requests. By outsourcing back-office processes, they can focus their time on chapter programming and engagement.
Fraud can happen to any organization – having the proper plans in place can reduce the risk to your chapters and the headache of dealing with the consequences of being unprepared. As we move forward from financial crisis, the next post in our Chapter Rescue series will focus on federal and state compliance issues that chapters face.