WHERE HAS ALL THE MONEY GONE?

As the country and western song by Junior Brown asks, "Where has all the money gone?" The Board of Directors of one of San Antonio’s leading charter schools is also asking that question today. It seems that their Director deemed himself to be underpaid. He resolved the issue by helping himself to the checking account. The article in Tuesdays SAEN indicated that the amount exceed $100,000. But, as the article pointed out, the real amount will not be known for some time.

The directors and those associated with the institution were shocked and dismayed. No kidding!

I have been in the CPA business since 1984. This disclosure comes as no surprise to me. If you are on the board of a non-profit organization, your chances of experiencing fraudulent behavior by a trusted official in your beloved organization are real. In fact, they are real big!

Non-profit organizations typically have very poor internal controls. Board members are often individuals that support the cause. These are well meaning individuals but more often than not, they really aren’t that concerned about the business side of running the organization. Board members simply trust that the director, bookkeeper, etc. are honest folks.

Many non-profits are required to get an annual financial audit by an independent Certified Public Accountant (CPA). The board members assume that a financial audit will undercover any wrongdoing. Well hear me on this point, "The audit probably will not detect the fraudulent activity until the numbers become significantly large!" Financial audits are focused on "significant" issues, not small issues. If your trusted employee keeps it small, the fraud can go on for quite some time.

The real issue here is "How do we, as a board of directors, do our absolute, dead-level best to assure the integrity of our key staff?" Here are some recommended steps:

STEP ONE
The first step must always be to call your insurance person. Most non-profits have a small E&O policy on the board members and nothing else. If your favorite non-profit does this, then you and your buddies are complete fools! The Board members never are the thieves. The staff almost always perpetrates any fraud. Insure those scoundrels.

STEP TWO
If you want your beloved activity to survive, treat it as a business. Don’t drink the director’s Kool-Aid!
Get with your CPA and set up a reasonable set of internal controls.

FINAL STEP
When you decided to be a "good guy", you also assumed a legal liability. Make sure that each board member is properly insured. Make sure that each board member understands that there are legal implications. Make sure that the director understands that he/she works for the board. Do not let that person overwhelm the board.

Fraud is alive and well in America today. The fraud is almost always perpetrated by the most trusted individual. I am not suggesting that you become a cynic; but, I am suggesting that become aware of your surroundings.