What makes a person working for a non-profit organization decide he or she is going to steal from it and risk losing their reputation, trustworthiness, or liberty?
Greed. Personal financial struggles. Craving for material things. Some combination of these and other damaging desires.
There are two preeminent issues with respect to non-profit fraud and putting a stop to it:
- A non-profit board is responsible for ensuring it is doing everything in its power to prevent and detect fraud. If the board doesn’t know exactly how to do that, it’s the members’ responsibility to seek help from people who have that knowledge.
- Board members’ failure, or reluctance, to fulfill their responsibilities.
The latter is somewhat understandable, if not legitimate. Most non-profit boards want to stay well away from bad publicity. Their organization’s existence depends on donors’ goodwill. The faster an unpleasant situation can be made to go away, the happier everyone becomes. And making it go away often means the board may be satisfied with restitution.
The result? The next fraud perpetrator may conclude that the rewards outweigh the risks.
A Nov. 19, 2013 Huffington Post blog by Pablo Eisenberg, a senior fellow at the Georgetown Public Policy Institute, said,
“In the weeks since The Washington Post published an extensive investigation documenting the diversion of hundreds of millions of dollars from 1,000 nonprofits, one might have expected regulators and others to move swiftly to figure out how to prevent such abuses and punish wrongdoers.
“But little of that has happened...Perhaps more predictable, but just as demoralizing, has been the response from the nonprofit world itself. Instead of looking at what has gone wrong at the organizations that lost money to employee embezzlement, unethical financial advisers, and other scams, some nonprofit leaders have attacked the Post, saying it sensationalized the facts.”
Eisenberg was writing about the reaction to a 2013 Washington Post investigation in which the newspaper reported that from 2008 to 2012 more than 1,000 non-profit organizations had indicated they had experienced a “significant diversion” of assets that amounted, the Post said, to hundreds of millions of dollars.
Non-profit boards and the organization’s executive leadership are the defensive line against fraud. But while boards must have confidence in the integrity of their executive leadership, that confidence can’t extend to being lax in financial oversight.
According to the Non-Profit Risk Management Center:
“each board member has a legal responsibility to exercise ‘due care’ in the performance of his/her duties. Exercising proper fiduciary duty includes overseeing/approving the financial and accounting practices of the nonprofit…”
In terms of board member protection, the Center says:
“Board members will generally not be liable if they have relied, in good faith, on advice provided by competent professional advisors, such as accountants and lawyers. Therefore, hiring reliable professionals, asking pertinent questions, and familiarizing themselves with prudent governance practices, as well as the nonprofit's financial statements, internal controls, and accounting practices, are important ways that board members can protect themselves from liability for a failure to exercise ‘due care.’"
If you’re a non-profit board member, executive or employee, chances are overwhelming you’re a good person doing the right thing for the right reasons.
But there are some, sadly, whose motives aren’t noble. For them, and for everyone’s best interest, it’s best for non-profit boards to follow a three-word suggestion: Trust, but verify.
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
Fraud and Non-Profits Series | Part 4: Reducing Your Exposure to Fraud
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