One problem many non-profit boards face is revealed time-after-time in news stories of organizations’ funds misused and misappropriated by an organization’s leadership.
The scenario generally plays out like this:
- The non-profit board is comprised of community volunteers
- The information and data provided to the board is determined by leadership
- At some point it is discovered funds are missing or have not been utilized in the way intended
- Board members are asked by the news media and public, “How could this happen?” and “Why weren’t you paying more attention?”
These situations represent what happens to only a fraction of the non-profits in America working diligently to do good for people. But if skullduggery is afoot, however, how is a board to know?
The board has a fiduciary responsibility to ask tough questions and demand specific answers. This can be challenging when board members consider the organization’s management to be “friends.” Sometimes, the board members trying to provide the most effective oversight are urged by their colleagues to tone it down. While there is nothing wrong with the board, management and staff being friendly, the organization has the responsibility to provide proper oversight and ensure the protection of the organization’s purpose and mission, as well as the intentions of its supporters.
Following are some basic guidelines for board members to employ to safeguard the non-profit’s organization’s mission, donors and staff, as well as the board itself:
- The board should include at least one individual with financial expertise that understands non-profit financial issues and the necessity for proper internal controls.
- Review financial activity on a regular basis and inquire with management as to any unusual items.
- Be aware of significant lifestyle changes of employees. If there is a noticeable change to the affluent, it shouldn’t go unnoticed by a vigilant board.
- Periodically review management’s credit card, travel and phone bills; as these often identify misuses of a non-profit’s funds.
- Identify procedures the organization has implemented to prevent fraud from occurring. Additionally, determine if there effective procedures to detect fraud should it occur.
- Request that your auditor incorporate additional procedures to provide a sense of unpredictability in terms of what staff and management may be accustomed to.
- Develop an anti-fraud policy and determine how it will be monitored to ensure it is enforced.
If you need help developing guidelines to reduce your exposure to fraud, let us know!
In case you missed our previous posts in our series on Fraud and Non-Profits, you can find them here:
Fraud and Non-Profits Series | Part 1: Misappropriation Schemes
Fraud and Non-Profits Series | Part 2: False Reporting
Fraud and Non-Profits Series | Part 3: Asking Questions to Uncover Fraud
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