I’ve done a lot of volunteer work over the years, and usually, it’s a fun way to meet people, learn new skills, and give back to the community. It’s one of those few things that is all-around good for everyone involved. When it’s frustrating, it’s usually because the non-financial people don’t understand where the financial people are coming from.
Recently, I heard from a friend about a small non-profit organization to which she belongs. The president was taking money, and the board is split – half want to drop the matter if she just repays the money, and the other half want to prosecute. I recommended prosecution.
Most of the people involved with non-profits are really nice, which is why volunteering is so fun. Crooks would rather do business with nice people, because they’ll be so much more understanding and so much less interested in causing a stir than those mean and pesky financial types. You’ll never be able to prevent everything. Confidence artists are just that – artists at gaining your confidence. They dress well and talk nicely and are ever so sincere and friendly. And, of course, not everyone who rips off a charity is a sociopath – some are people who think they can get away with it for the short term, and they really plan to pay back the money, but then the whole plan falls apart.
I’ve found that having a financial background makes one in-demand on governance boards. And, I quit one non-profit organization’s finance committee and chose not to join another board because I was so uncomfortable with the financial practices. It is hard to get good volunteers, but having good financial practices makes it easier. Here are the things financial people look for:
- Separation of duties. This is simple – all it means is that the people who handle the money and the people who pay the bills are separate. One person collects money at the door, the other writes the checks for the venue. Or, one person is authorized to write checks but another receives the bank statement. Even small organizations can do a little of this, and with so many national banks, it’s easier to separate duties than ever, ever if the people involved live across the country. This is not only a good financial practice, but also a good way to spread the work around so that no one is overwhelmed.
- Term limits: Another great way to spread the work around, limiting the number of years that someone can serve as president or treasurer also makes it more likely that problems will be discovered sooner rather than later.
- A budget. This shows how much is expected to come in and how much is expected to go out. Actual results will vary – of course, they will vary! – but comparing the budget to actual can show if there are holes in the finances. Is less money coming in than expected? Why? Are office supply expenses going up? Why? This analysis can help detect fraud. It can also show ways to improve the group’s operations.
- Audits and reviews: Larger organizations need to have more sophisticated levels of review. An audit is an analysis and a statement by a certified public accountant that shows that the financial statements are presented accurately. It has more legal force than a review, but a review generally costs less. Once an organization is large enough to file with its state department of corporations or with the IRS, the board should consider some sort of regular audit and review schedule. This can range from an audit every year to a review whenever a new treasurer is elected; yes, it costs money, but it is a great way to catch errors or fraud.
- Consequences for financial wrongdoing. If a breach warrants firing or prosecution, then do it. Word will get out, and your donors and partners will respect you for doing the hard thing.
When you are on a non-profit board, you have a fiduciary responsibility to the donors. They want money to go to the cause at hand, not to the treasurer’s credit card company or the president’s drug dealer. Even small organizations where everyone knows each other have problems – sometimes, they are more likely, because a thief knows that smaller organizations won’t have as many checks and balances as a large one.
Still, when it comes to fraud, there’s an element of “there but for the grace of God go I”. Lots of people have been affected, and even very good practices that scare off the bad guys and make it easier to find problems won’t prevent everything. However, most fraud-prevention practices are good ways to delegate work fairly and keep an eye on the organization’s operations. They go beyond fraud prevention.