This article was originally published in the spring, 2014 issue of The Association Consultants Report, and is reproduced with permission.

The funds of non-profit organizations are often in the hands of only a few people, whether they be staff or volunteers. Two separate incidents involving the fraudulent activities of a non-profit finance director and a treasurer once again raise the reality of the vulnerability and risk facing associations, clubs, churches and other non-profit organizations.

Two stories of fraudulent activities

The finance director of a provincially funded Ottawa charity providing housing and education for developmentally handicapped adults stole at least $900,000 over an eight-year period to support a lifestyle that included spa treatments, travel and personal groceries. Charity staff stated: “She hid her fraudulent conduct by manipulating the general ledgers and reports to the board of directors.”

Officials at a century-old downtown Ottawa church are alleging that a retired public servant who served as its treasurer for 30 years embezzled more than $600,000 from church bank accounts between 2009 and 2013. Church officials stated: “He was the sole signatory on the church’s chequing and investment accounts, reconciled bank statements to the church ledger, and maintained records of income, revenue, receipts, expenses, disbursements, assets and liabilities.”

Both these organizations had placed their faith and blind trust in individuals who used that trust to their advantage. Both organizations dealt with large sums of money, often cash. They both had experienced staff and volunteers, yet they fell victim to “non-profit treasury fraud.”

The board of directors is responsible for the management of the association including its finances. While this is usually delegated to the executive director and thus employees, the board is still responsible and must establish budgets, policies, controls and reporting procedures.

There can be resistance on the part of boards to push for tighter controls—it’s part of the tension between management’s independence and the board’s duty of oversight. Some boards err on the side of blind trust, because they fear they will appear heavy-handed, disrespectful or doubtful of the honesty and integrity of staff and volunteers. It’s a fine balance, but one that must be maintained. Having the right procedures and policies in place also prevents honest members of an organization from being falsely accused of wrongdoing.

Here are just a few of the measures that need to be in place:

• Always have at least two people count cash, and have both counters sign agreement on the total.
• Require at least two signatures on cheques.
• Have a board member who is not the treasurer or a signer on the bank account review and verify the monthly bank statement against the treasurer’s report.
• Create a paper/electronic trail and keep duplicate copies of transactions, bank statements, cheques, deposits, receipts, credit card statements, etc.
• Establish clear rules on exactly what is and is not an allowable expense for reimbursement to staff or volunteers, and consistently use a sound policy for who approves expense reports. No association employee, member, director or officer should approve his or her own expense report.