Chapters in Crisis: How to Prevent Chapter Financial Fraud

RELATIONSHIPS

Chapter staff and volunteer leaders must feel comfortable asking you for help. They must be willing to get vulnerable and admit their ignorance or point out something that doesn’t look or feel right. They must understand there will be no repercussions if they do.

No one wants to admit failure or call attention to a problem that could potentially escalate later, but chapter leaders must adhere to this familiar rule: If you see something, say something.

FINANCIAL POLICIES AND PROCEDURES

Establish term limits for chapter officers.

At least three chapter representatives should be authorized signers on all accounts at all times and have access to online banking If one of the three is suspected of fraud, the other two can have the third removed from the account or their access frozen.

Bank accounts should be reconciled every month. Better yet, provide technology that can automate bank reconciliation. Whoever is keeping the books should send a bank reconciliation to all officers or the whole board, if appropriate.

The American Academy of Pediatrics provides a financial controls checklist to their chapters. A system of checks and balances ensures that no one person has control over all parts of a financial transaction. For example:

• Separate handling (receipt and deposit) functions from record-keeping functions (recording transactions and reconciling accounts).
• Separate purchasing functions from payables functions.
• The same person isn’t authorized to write and sign a check.
• Check requests must be accompanied by a sharable PDF with any supporting information.
• If a chapter is so small that it can’t separate duties, an independent check of work, for example, by a board member, is required.

Run a credit check periodically to uncover unauthorized accounts.

Establish a whistleblower policy and procedure to ensure that anyone who wants to report something fishy is ensured protection from retaliation. Consider an anonymous hotline run by a third-party, like MPI Cares, that members can use to report unethical behavior.

Take some of the administrative burden and financial risk off chapters. Technology shared by National and chapters can automate repetitive tasks and eliminate the reporting burden, for example, a virtual or consolidated banking solution for chapters.

With a virtual banking solution, fraud controls are built in. National has one master bank account divided into separate virtual sub-accounts for each chapter. This specialized software allows each chapter’s virtual sub-account to function like a standard bank account. Chapters can view and manage their sub-accounts separately.

An alternative solution, if you have the bandwidth, is to manage your chapters’ finances. Chapters may push back on this option, seeing it as a loss of control. However, they still have budget control, plus they can enjoy the primary benefit of outsourcing back-office processes and tasks: more time to spend on programming and member engagement.

If you go this route, you must provide complete transparency as well as a quick (within reason) response to payment and information requests. Provide training each year that outlines the division of duties and manages chapters’ service expectations.