I’m going to kick off this blog by telling you a couple of stories. You can decide if they’re real while you’re reading.
Sarah was a single mother going through a messy divorce. She was trying to feed her kids, and the money just wasn’t there. Sarah was the treasurer for a local organization and, even though she was an accountant and knew it was wrong, she borrowed money from the organization without anyone knowing. She was in the process of paying it back when the chapter president noticed the financial irregularities.
After serving as a house corporation treasurer of a national organization for four years, Abby was elected to house corporation president. The chapter board had a pretty smooth transition, but about six months into their year, the current treasurer, Paula, started missing meetings. When asked about the financial reports, Paula gave vague answers and didn’t provide any additional information. Even though Abby was a bit uneasy with Paula’s lack of reporting, she was more uncomfortable about confronting her. After all, they were all volunteers doing the best they could to find the time in their busy schedules to serve the organization. Over time, Paula’s attendance at board meetings continued to be sporadic with little-to-no financial reporting. Her responses to board questions became even more evasive, and she finally became non-responsive. At this point, Abby took matters into her own hands and, after reviewing copies of the bank statements sent from the bank, discovered there was more than $500,000 missing over the course of two years.
So, what’s your thought — true stories or not? While I changed the names of the people involved, unfortunately, they’re all true situations that involved local entities of our fraternity and sorority clients. In both situations, the missing funds were discovered by elected board members who had financial backgrounds and were committed to taking the extra time to dig into the details to figure things out.
Don’t think this could happen in your fraternity or sorority? Neither did any of the board members of these groups. Sadly, these types of situations happen more frequently than anyone would like to admit. Theft by employees and volunteer officers is a significant exposure for not-for-profit organizations including fraternities and sororities. Many times, these organizations are easy targets because they don’t take the time to implement basic financial management practices, and many times board members ignore the red flags.
So, what can you do to reduce the risk of being a victim of an embezzlement? While there are several recommended strategies to reduce the exposure to an embezzlement claim, the most critical and most effective is to make sure you segregate duties. The officer responsible for paying bills shouldn’t be the officer who reconciles the financial accounts. Reconciling the accounts should be done monthly. A consistent process of checks and balances is a big deterrent to a would-be embezzler. And even if it’s not, you will be more likely to catch the theft before it grows into a big loss to the organization. For more financial best practices, check out this resource on our website: https://www.holmesmurphy.com/fraternal/wp-content/uploads/sites/2/2019/03/Crime-Prevention2019.pdf.
Always be on the lookout for red flags. Behaviors like the following should be further investigated. The person:
- Is living beyond their means.
- Is unusually close with vendors.
- Has control issues, specifically those who don’t want others involved in the financial management of the organization.
Remember, when you look at the characteristics of an embezzler, they’re usually well-educated, dedicated, trustworthy, often have a great personality, and have no criminal record. They tend to be in a trusted position for the organization with access to the finances and often would be the least likely person to be suspected. It’s impossible to know from outward appearances who is likely to steal and who isn’t. The bottom line is that someone who was once viewed as trustworthy, later may prove not be.
My best advice…always be diligent in managing this risk your organization faces and certainly don’t hesitate to reach out to us for help!