We’ve all seen headlines about embezzlement at local nonprofits. You can’t help thinking:
- How could someone like that get into a position of responsibility?
- How could they get away with their crime for so long?
- Weren’t there any warning signs?
- Didn’t the organization have controls in place?
Oh yeah, one last one: That would never happen to us!
Wishful thinking is comforting but dangerous. Yes, it can happen to you, but no one wants to see it happen, which is why the second post in our series on chapters in crisis focuses on chapter financial fraud.
In this series, we assume chapters are subsidiaries, a situation that brings more risk to National, but also provides more control. Even if your components are independent, you’ll benefit from the advice we share.
CHAPTER FINANCIAL FRAUD (NOT SO INNOCENT)
Innocent incompetence, like the financial mismanagement we described in the first post in this series, is easy to forgive. After all, you may be at fault for not providing sufficient training and policy requirements to prevent it. But fraud, that’s another story.
DEALING WITH CHAPTER FINANCIAL FRAUD
The new chapter president finally gained access to bank statements and is troubled by what she sees: unexplained cash withdrawals going back months. She can’t think of any reason for the withdrawals. The former treasurer is not returning her texts, calls, or emails so now she’s on the phone with you.
First, ask your accounting professionals to review the situation, and then seek legal advice. Once the dust clears, check with your CPA or tax attorney, you may have to report the fraud on the chapter’s Form 990 as a “diversion of assets.”
You’re dealing with financial and tax implications, possibly legal action, plus hours of frustration and lost productivity. But that’s not all. Depending on the severity of the theft or fraud, the chapter and National brand is at stake too. If word gets out, industry watchdog publications may aggressively investigate the situation.
HOW TO PREVENT CHAPTER FINANCIAL FRAUD
You can never say “never” but you can minimize the chances that this could happen in one of your chapters.