Having Protection and Processes to Avoid Misappropriation with Documentation

Tuesday September 13, 2022 comments Tags: nonprofit, hiring, protection, documentation

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Hi there, this season we're taking articles from the news, and I'm going to give you what your organization can learn from it so you are not the next person in the news for this type of thing. So this one, there are two articles I found on this topic. So one was a current status and one was the initial charge. In this case, there was a financial manager for nonprofits who stole over a million dollars, initially could have gotten 99 years in prison but they pled guilty and will only serve 10 years of probation. 

Organizations, be sure to do a background check on your new hires, especially hires that will be responsible for cash, they will have access to your money. Because if it's happened in the past, not to say that it will, there's definitely certain crimes and charges, how they might read on a record might not be indicative of the true case. You want to be aware of any red flags, you want to be able to say, Okay, do we need to make sure we have additional insurance because this person is going to be at the organization? Do we even want to put ourselves at that type of risk? Think about that. 

And the other thing that I want to think about for organizations is when you end up losing a person because of financial mismanagement, because of theft, you have to be honest, very often people do not want to ruin reputations so they don't file charges. They don't tell people like, hey, this thing went wrong, do not hire them. And so that's my current data on like, what do you do now that this person is on probation? When you do the background checks, if someone calls you for reference, you listen, you ask the right questions, you say what happened, I see this, I want to understand because I don't want it to happen again and I want to be sure that we're making the best decision for the organization. So that's number one. 

In 2020 when they've got probation, all those people who might be getting their resume now, keep that in mind. Okay, so what happened? So back in 2017, it was first reported that the Roadie Austin. That's a nonprofit that raises money, and helps do scholarships for people and they do it through running a month long rodeo, they had a CPA. They were someone who is in a position of trust and was hired at the organization and they were hired in 2014. 

At the time this was reported, you know, initially it was 850,000. It was actually $1.3 million that ended up being missing and there are multiple things, he mentioned a medical condition that causes it for the medication he was on, I will not speak on any one's medical concerns. I think that that is outside the purview of this conversation. 

What I do want to talk about is how it happened. Because regardless of the medications that you might be on, regardless of what led him to the compulsive behavior, as they put it, there were instances at the organization that made this possible. It wasn't something that he was able to do because there weren't controls. So what happened was he was able to use the organization's accounts, credit cards, and the like for personal use. Your credit cards.

There should be multiple things going on with your credit cards. What I recommend as a best practice and I understand that some organizations feel this is a bit too strict. But this is your reputation and you say you don't want to be on the news. So this is what I recommend you do. For your credit card, what you have is that employees need to complete an expense report. The expense report says, Who authorized them to make these charges? So when I worked at one organization, what they had was travel authorizations, because we did a lot of travel. So everything had to be like, who approved you going on this trip? How are you getting on this trip? That way they understood, what should I see, a ticket for a flight? Should I see a rental car, that type of thing. 

So what type of process do you need to have so that you have a general overview of who is approving what is happening that way when it gets to the finance department, someone can flip through it and say like, Oh, yeah, this all looks good. This makes sense. 

So one, you have the approval, getting approval in advance before charges can be filed. And then you have the expense report. So the expense report is where they're going to detail what they did. So, okay, the hotel, what hotel, how much, how many nights total? They're going to detail that, once that is done, once they've broken that down, they've attached the necessary receipts, who does that go to? It goes to their supervisor, their supervisor can then look it over and say like, yep, all of those things look good and accurate. Go ahead, accounting. Here you go. I'm comfortable with these charges, having that layer. 

So now we've had two levels of approval, we had someone who said in advance, yep, I expect this person to go on this trip to do their job and then we have the supervisor, who may have been on that trip or not, but someone who's more knowledgeable of like the day to day happenings can say like, yep, all of this looks good before it gets to the accounting department. Then because this person is in the accounting department, what I would recommend is they are not the ones approving their own expense reports. 

So they need to have the operations person, they need to have someone who is at least at their level if not higher, approve thiers. You don't want someone below them to have to push back and say, Oh, I'm missing a receipt, they're not going to feel comfortable doing that. What you want is someone who is either able to say, but you know, better, right? Do better, and can push back on that. So that you don't have that personal use going on. The other thing is about who has access again, you want to make sure, is there a threshold that this person is allowed to go up to? 

So this person was hired in 2014 and at the time of the initial report, it was 2017. So in three years, this person was able to spend $1.3 million. You should be worried that in three years, no one noticed, hey, this looks odd. Again, when people want to do something, they can, there's lots of ways around. But you want to know that you’ve set your organization up to do the best it could. You had as many controls in place, as was appropriate for your size and for the number of transactions. 

To me, if I knew we brought in $1.3 million of donations, and I couldn't logically get back to like, Oh, can we quick math think about how we spend that, oh, we hired these two people, they have benefits, we started these two programs, they cost about this much per student. If you can't quick math back into, okay, I can account for those dollars, you might have a concern in hand. 

So go back to your offices, go back to your desk, whatever that looks like. And really think about where are the places? How many, who needs to be involved in the approval process? Who needs to be thinking about who is signing off on anyone's expense report, who's signing off on transfers, who’s signing off on their credit card access? 

Think about that for your organization and also think about what are we going to do if it happens, what are we going to do if we meet a great candidate, but we realize that there are some concerns? Are we doing background checks on people for the organization's? So go forth prosper. Do not end up on the news for stuff like this. All right. Bye.


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Link to Article: Former Rodeo Austin accountant pleads guilty to $1.3M theft, sentenced to probation