How to Question Leadership for Greater Transparency and Preventing Fraud

Tuesday March 7, 2023 comments Tags: nonprofit, accounting, reporting, fraud risk, fraud prevention, leadership

Any accounting business and tax advice contained in this podcast is not intended as a thorough in depth analysis of specific issues. Nor is it a substitute for format information. Nor is it sufficient to avoid tax related penalties.

Hi, it is Chyla Graham, welcome to another episode of The Nonprofit Ace Podcast this season. It's all about fraud, fraud prevention. CNRG is my company, we work solely with nonprofits. My goal is that nonprofit leaders become comfortable talking about money and having conversations about fraud is part of developing that comfort. 

I'm working through a fraud risk questionnaire that is available for download. So if you check out the show notes, you can get that for yourself. But this week's questions are about management. And this is incredibly important because one of the areas in the fraud triangle. So things that you should be aware of is: Is there too much trust? And in management there typically is.

So the board believes this person would never do it, this person loves us. But that might be true. They might love you but they can also steal from you. Those two are not mutually exclusive. But what I want you to think about, as you question management, think of these questions that take it outside of, this person really cares about the organization, to what's a real tangible thing that could occur that we should be mindful of? 

This does not negate how they feel about the organization. This is again, taking out that emotion and saying, okay, but in a real talk practicality, is this something that could happen? So question number one, I think of management as your CEO, the executive director, as well as the person who's on the finance team and so these are the questions you want to think about for them. 

Is the organization dominated by only one or two people. So all questions and all requests have to go to the same one or two people? If that is the case, that means that they could be the bottleneck. This is not just a fraud issue. This is a functionality, a restriction on growth issue. The concern there is what will it take to empower other people. 

I like to say that this is not just about the organization protecting itself, it's about protecting your employees. And if everything has to go to the same one or two people, those one or two people might be spending all their time answering questions and not getting their work done. This could lead them to working after hours, this may lead them to the “I'm not getting paid enough for this” road. 

So really think about that. Of, Hey, how is this happening? Who's answering the questions who has to complete this request? And then think about the rest of the pieces. The financial pieces. And think about the accessibility of financial reports? So is there only one person who can answer questions about the reports? Yes, your bookkeeper might be the person entering the information or you have an accountant who's helping you analyze the information. But if those are the only people and your executive director can also answer those questions, or only the executive director can answer those questions but the bookkeeper can't, the bookkeeper always says, Well, you have to talk to the executive director because I just did what they told me to do. This is a problem. 

Think about when the last time the board reports were explained and not just presented for a vote. So oftentimes, money can be a sensitive topic, people are uncomfortable talking about it. They don't want to say they don't know and so they don't ask any questions. Don't ask questions. And of course, I understand. No. So think about, okay, we review the reports. And it's not just about an action, we're going to ask a question. Maybe consider what's one question that you could ask yourself, What's one commentary that can be asked? 

Maybe you don't ask any questions, but is a narrative presented? Is each month, the reports is presented, people are giving you information and you are able to say, Oh, that makes sense. Cool. I don't have a follow up. But it's not just, Hi, Bill financials are in your packet. Would you like to vote? That is not enough to mitigate any risk because there's no proof that anyone looked at it? 

So another thing is, how timely are the reports? If your reports are consistently late. Is there a reason? So think about the timing. When you get the reports they're two months late. So for example, if now in March, or now in April, are you looking at reports from January? This might indicate there's a problem in your system. What is the reason why reports are coming out so late? If it's because your board meeting is the first week of April? Whoa. You need to push your meeting back if you want to be looking at more recent reports. So think about things like that, like if they're late, why are they late? Is it that our meeting is too early or is that there's an issue in the system that prevents timely reports from being done? 

Another question to ask is, are we getting lots of notifications from regulatory bodies be that your city or your state, the IRS saying, Hi, you didn't pay this thing. Even for vendors? Are you getting lots of reports from anyone saying that you did not pay a bill? If you're finding that every month, when you look at the financials, our liabilities are growing, but we're not paying them, ask why. What's happening? What's causing this and get to the heart of the matter and not just accept like, yep, our bills keep going up. Do we not have cash to pay it? If we had cash, why are we not paying it? So really think through what's happening on that front, so that you can be better prepared. 

Alright, then this has been another episode of The Nonprofit Ace Podcast. If you are interested in getting the full list of the fraud risk questionnaire, go to the show notes and the link will be there.


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Fraud Risk Assessment