Tuesday February 16, 2021
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Hey, its Chyla Graham CNRG Accounting Advisory here with another shenanigans episode for you. So what are shenanigans? Shenanigans are cases of misappropriation and misreporting mismanagement of funds that end up in the news and I want to give you some tips on how you can prevent it from being your organization. So this one comes from the San Francisco Bay Area, the title is Director of Monterey County Nonprofit Sentenced for Embezzlement. So this actually came out late 2020. This woman started Central Coast kids and families organization because they saw a need, they were like, hey, I want to help and what ended up happening is they embezzled more than $700,000.
So embezzlement is another fancy way of saying misappropriation of theft. I just wanted to make sure that we weren't throwing in a new term that was going to be extra. How did they do this? How are they stealing the money? How are they misappropriating it? What they did was they had timesheets that overbilled their work. There was also money used for personal vehicles and for living the highlife. How do you stop that? Board members, this one's for you. So this is a case of someone who established an organization and they are now the director, they become an employee if they’re doing timesheets. What could have stopped this person who's in this much control? The board. The board is the true boss of any executive director. They're the ones who are ultimately responsible, it doesn't matter that this other person founded it.
The board is there for the name of the organization. It's their name and reputation. So they need to be the ones to push back and say, Hey, if you're going to be involved, and you're going to have timesheets, we need to be doing performance evaluations and we need to think about are these timesheets accurate? Timesheets can be really tricky because you don't really want your board involved in checking timesheets. But if they're being paid based on an hourly wage, you need to be thinking, does that amount this person got paid divided by their hourly rate give us their total number of hours? Are those total number of hours appropriate?
So it's a really good idea for your organization to have a compensation committee or at least someone who owns a compensation chair who can really spearhead those conversations. So you can say, this looks weird. This looks odd. Like I don't need to test their timesheets, I just need to do some quick math to be like, does this work? Does this even seem to be the right thing? So that's it for the timesheet parts. They said hundreds of invoices. So in that case, what I think of is the idea of a conflict of interest. As the president she's invoicing the organization. What makes that okay? So, each year, your board, your key employees, anyone with financial responsibilities should be signing a conflict of interest statement that says that I will not act in my personal interest.
You might have the case where there's a board member who does construction and your organization is in need of a contractor. It is okay for that board member to submit a bid. That's not a problem. They will need to disclose that on the conflict of interest that, hey, I'm a contractor, we want to do construction for the organization. The other thing, they should not be voting on that contract. So they should not be in the room to talk about whether or not they will get the contract. They don't have a say in that. Same in this case, where it's the president or the founder. If they're like, hey, I want to invoice the organization for my work. They should not be in the room, the board member should say are we comfortable with this? Would it be appropriate for this to happen?
And then finally, the idea of who is the person who's going to get pushed back, you want to make sure that you are hiring someone in the finance team who is going to have a strong personality. I know that can be taken a lot of ways, but you need someone who's going to stick to their guns, I don't mean someone who will be abrasive or brash. It happens but you want someone who's going to stick up for what is right and is not going to be easily persuaded or intimidated by the person and leadership. So that is who you want to be your treasurer, especially if you're going to be working with the president in this way.
So organizations go back to the drawing board, see if you’re at risk, see if there is anyone in your organization that you're uncomfortable having those tough conversations with, because again, you don't want to put yourself in a position where like, we were too scared to say something, so we assumed it was okay. All right. Please. Goodbye. Have a good day. Do not end up on the news for something like this. Thanks for tuning in to another episode of the Nonprofit Nuggets Podcast.