Thursday, December 12, 2013

Who is guarding your association’s finances and resources?


Association & Nonprofit CEOs:
  • When was the last time you really looked at your association’s financial systems and safeguards? Your members and boards assume you are protecting the funds you hold on behalf of your members and organization.
  • Think what happens to your career if you violate that trust?
Association & nonprofit CFOs:
  • Are you following financial checks and balances to ensure the funds you manage for the association?
  • Have you shared any concerns with your CEO and boards?
  • If not, who is going to protect you and your organization?
These questions come because another high profile embezzlement gives all associations and nonprofits a black eye.

Here’s the recent story from the Washington Post:
  • An administrative assistant admitted Monday to stealing more than $5 million from the Association of American Medical Colleges (AAMC) one of the largest embezzlement schemes from a Washington area nonprofit organization.
This article outlines the embezzlement that was recently reported at AAMC.
  • A Washington Post analysis last month of federal disclosure records filed by nonprofit groups across the country revealed more than 1,000 “significant diversions” of assets at such organizations. Many of the diversions identified by The Post were described as acts of theft and fraud carried out by insiders, contractors and investment advisers.
  • As an administrative assistant, Green had sole sign-off power on invoices up to about $20,000. 
  • “We are truly stunned,” Darrell G. Kirch, the AAMC’s president and chief executive, said in a statement that referred to Green as a “long-time, trusted employee.”

Trust but verify

When I owned an association management company, protecting the assets of my clients was a “what keeps you up at night” issue. I engaged a certified fraud examiner to establish systems and processes to reduce the chance for fraud and embezzlement. Afterwards, I slept better!

I wrote about embezzlement in May of 2012 in Ripped from the Headlines: 5 Steps to Protect Associations from Embezzlers

The newest case of embezzlement generated a lot of chatter in the ASAE online engagement area.  Here are some selected comments from association management professionals via ASAE Collaborate:

Chad Rummel, M.Ed., Executive Director, Society for Personality and Social Psychology
  • I am taking over an organization that, in the last year, discovered embezzlement that had taken place over the course of the last three years ($350k+). In our situation, the issue should have been blatantly obvious and our board/management has owned its lack of internal control and instituted correction.
  • When something like this happens, how do you convince your membership that the association is to be trusted? How do you convince your sponsors and donors that they should still support you?
Michael L. Wyland, Sumption & Wyland
  • I've encountered several examples of nonprofits that suffered from fraud, embezzlement, etc. In every case, the nonprofit had a history of being audited and receiving either unqualified opinions (i.e., no problems) or opinions with very minor qualifications unrelated to the areas of fraud. In one case, a nonprofit with $1 million in revenues received unqualified audit opinions routinely, despite not having reconciled its operating checkbook in 13 years!
  • If an organization wants to test its financial systems for fraud and abuse, there are better, though usually more expensive, tools than a financial audit. Financial audits are a good thing, but it's important to remember what they are designed to do - and what their limitations are.
Greg Wilson MPPA, SPHR, CAE, Director of Finance, California District Attorneys Association
  • First thought (speaking from experience)... when policies are implemented such as "We do not give checks back to a requester, but will instead mail them on the requester's behalf." and when the rest of the staff grumble about that policy... your senior accounting staff (the CFO) needs courage and extremely thick skin with the full support of the CEO so that policies aren't altered and are indeed followed.
  • Persons with check signing authority should have intimate knowledge of vendors, contracts, deliverables, budgets as well as the courage to put down their pen if any small item seems not quite right.
  • Sadly I think it is a lack of courage that we are mostly lacking. I just don't see enough folks willing to question or press pause or say no. That is the Achilles heal.
Susan Avery, CAE, Chief Executive Officer, International Association of Plastics Distribution
  • Internal controls are vital for any association. Truth is, most of us do not meet the guidelines for segregation of duties set by GAAP. Even some of the largest associations would not, as the number of staff required to truly meet the requirements require too many staff. Just about every association is getting a statement in their management letter regarding segregation of duties, unless they have a very large finance department. 
  • So, as an association CEO, are you monitoring your financial and accounting systems? Have you conducted an outside review of your systems and processes? Have you considered using a certified fraud examiner to conduct this review?

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