W^H? The Holmes Murphy Blog

  • THE GREED THAT COMES WITH THE ‘GREEN’

    Ever heard of the song, “For the Love of Money” by The O’Jays? If it’s not ringing a bell…think Celebrity Apprentice (Money, Money, Money, Money — Money!). It’s catchy. It sticks with you. And well, who doesn’t love money? Song aside, the problem with money is that some people love it a little too much.

    Sadly, embezzlement of monies is a problem that has plagued many non-profit and fraternal organizations. You see it on the news regularly.

    You Aren’t Immune to Embezzlement

    Many organizations rely on the good faith of their volunteers to work honestly on their behalf. As a result, many don’t implement simple and cost-effective best practices to help mitigate the organization’s exposure to financial loss.

    Let me give you a couple of examples of embezzlement:

    1. In one case, money was collected via dues and fundraisers and given to the Chapter Treasurer. Months later, planning for formal was in high gear, and the deposit checks started bouncing. The Treasurer had used nearly $10,000 in Chapter funds to pay his personal bills, and the theft wasn’t discovered until he had completed his term as Treasurer.
    2. In another case, a local House Corporation had the same Treasurer for more than 25 years. The Corporation didn’t have Crime Coverage, and when it tried to apply to be a 501 (c) 3 Corporation for tax purposes, it was discovered that the Treasurer had stolen $175,000 over the course of his service as Treasurer. There was no insurance coverage for the House Corporation.
    3. A third case involved an alumna who was tasked with furnishing the new university-owned sorority house. By submitting invoices for furniture and equipment without ever actually providing the goods to the house, she defrauded the sorority for nearly $400,000. She was arrested and charged with wire fraud, bank fraud, and money laundering.

    These cases share some similarities. A good system of checks and balances was missing. A single person was able to hide his or her activities. Audits of chapter and corporation finances didn’t happen regularly. Previously authorized users weren’t removed when their term of office ended. There was no approval process in place to double-check expenditures.

    How You Can Protect Yourself Against Embezzlement

    So, what can you do to ensure embezzlement of monies doesn’t happen to your organization (fraternal or otherwise)? While this isn’t a full list, here are some items to consider: 

    • Dual signatures — Require dual signatures on checks.
    • Separation of duty — Separate duties of monthly account reconciliation from the officer with check writing authority, and appoint another officer to be responsible for this function. Liquid asset accounts should be reconciled on a monthly basis.
    • Account management — Have an account that prohibits debit card and ATM withdrawals. You may, however, open a separate account (with a balance no greater than $1,000) that’s sole purpose is to provide cash through ATM withdrawals. Justify and document how the money is used through an expense report that requires submission of receipts.
    • Annual audit — Have an independent third party conduct an annual audit of the chapters’/corporations’ financials when a new officer is elected. Perhaps there’s an alumnus that will do this at no charge. Due to the financial constraints, we’re not recommending an independent audit by an outside accounting firm. The decision to go through an independent audit will likely be dictated by the extent of the assets of each respective organization. Instead of an independent audit by an outside accounting firm, your organization might elect to appoint an internal “audit committee” of 3 to 5 persons who would review the deposits and disbursements annually.
    • Vendor checks — Make sure that checks are made out directly to vendors.
    • Expense approval process — Have an approval process in place to approve expenses prior to writing checks, and consider having a third party review/approve invoices.
    • Communication — Clearly communicate that anyone who commits this type of crime will be prosecuted to the fullest extent of the law. Such activity is contrary to the values of the organization.

    The key tip is to be proactive and have a plan in place to handle your organization’s money appropriately. Because…well…the only “money” you want to be hearing about on the radio or TV is the song…not a news segment about embezzlement.

    Now, I’m curious…do you have a plan in place? How is it working? What tips can you give to ensure other organizations don’t fall victim to embezzlement? What other help can I provide to you? I’d like to hear from you. Comment below and let’s talk!

    Published on: 03.10.16