An employee of the Field Museum was recently convicted of embezzling $500,000 from the museum. You might expect the museum, as a larger organization, to have controls in place to eliminate the risk, but apparently that was not the case. There have been many stories about embezzlement at nonprofits of various sizes. While I don’t think it happens more often in nonprofits, I do believe that nonprofits are held to a higher standard because they are using a donor’s money for public good.
How do you reduce the risk? We have several suggestions:
- Most importantly divide responsibilities. If you are a small organization considered dividing responsibilities between the executive director and accountant or board member.
- Consider also asking each board member to rotate reconciling and reviewing the bank statements each month. A fresh set of eyes can often find things that are unusual. It is important however that board members ask questions.
- Finally, prepare a budget and compare your actual expenses to the budget. If there is a significant deviation, you need to investigate it.
Consequences: In addition to the loss of the money, there are several bad consequences.
First, donors may think less of you as stewards of their money.
Second, there is a question on the form 990 about a “mass diversion of assets”. You need to answer the question yes if you have been victimized. It can now become public knowledge once posted on various public websites.
Finally, if you do need check the box yes, you are at a very high risk for an audit. This can be a significant use of time and expenses that could be better spent on your mission.
There is not surefire way to completely eliminate the risk, but you can reduce the risk by taking some simple precautions we have listed above.
If you have questions or need assistance, on how to reduce the risk of fraud or embezzlement, please give us a call.
