Let The Thieving Begin!

Thank goodness it has been awhile since the dirty little secret of just how easy it is for someone inside a nonprofit performing arts organization to misappropriate organizational funds has made headlines. And by misappropriate, I mean embezzle and by embezzle, I mean steal. Nonetheless, from across the Atlantic comes a report that the former Financial Director for the London Philharmonic Orchestra “siphoned off” just under US$1,000,000 over a period of four years. The indiscretion was brought to light after the organization executed an external audit…

prisonerIn a perfect world, performing arts organizations would have enough full time staffers to ensure proper oversight measures to prevent this sort of thing from happening as much as it does, but that simply won’t happen anytime soon (unless congress decides all of the Sarbanes-Oxley rules should apply to nonprofit institutions). Nevertheless, the incident at the London Philharmonic demonstrates that looking over the shoulder of your finance officer is certainly worth the effort, even if you can’t do it all the time.

Although most US orchestras conduct external audits on an annual basis, many use the same firm over the course of several years. There’s nothing wrong with that; after all, rewarding good service with continued work contracts is just good business. But it makes sense to shake things up every now and then by using a different company or better still, conduct dual audits. Granted, this is going to be cost prohibitive for most groups but it is something for board members and CEOs to keep tucked away in the back of their mind, especially if an opportunity for some gratis accounting services comes around.

Until then, the economic downturn is doing a fine job at directing added scrutiny toward organizational finances. So in this bizarre instance, our troubles are our friend.

About Drew McManus

"I hear that every time you show up to work with an orchestra, people get fired." Those were the first words out of an executive's mouth after her board chair introduced us. That executive is now a dear colleague and friend but the day that consulting contract began with her orchestra, she was convinced I was a hatchet-man brought in by the board to clean house.

I understand where the trepidation comes from as a great deal of my consulting and technology provider work for arts organizations involves due diligence, separating fact from fiction, interpreting spin, as well as performance review and oversight. So yes, sometimes that work results in one or two individuals "aggressively embracing career change" but far more often than not, it reinforces and clarifies exactly what works and why.

In short, it doesn't matter if you know where all the bodies are buried if you can't keep your own clients out of the ground, and I'm fortunate enough to say that for more than 15 years, I've done exactly that for groups of all budget size from Qatar to Kathmandu.

For fun, I write a daily blog about the orchestra business, provide a platform for arts insiders to speak their mind, keep track of what people in this business get paid, help write a satirical cartoon about orchestra life, hack the arts, and love a good coffee drink.

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4 thoughts on “Let The Thieving Begin!”

  1. Audits are essential for just about every organization and while they don’t scale perfectly with size, the audit we held at a $1.5M arts organization I was part of is much cheaper than the one we have at the $45M organization, given there is much less financial activity to check.

    There are many accounting firms with sterling reputations. In the corporate world among Fortune 500 companies, it is not usual practice to either conduct dual audits or to change firms very often. In fact, using the same firm is helpful as they can conduct successive audits more rapidly and sometimes more cheaply once they have already learnt something about your business practices and accounting systems.

  2. If musicians were involved in the hiring process of the top executives AND THEIR INPUT WAS TAKEN SERIOUSLY, maybe some of these crooks and incompetents would not have been hired. I was given a very serious warning by a friend about a potential ED candidate and then I was told not to stir the pot by someone else as this candidate might retaliate against me if they were hired. I should have put up a bigger fuss as this person was hired, I was fired, the orchestra almost tanked and now the audits are revealing all sorts of interesting facts that really would prevent this ED from ever getting a job anywhere else.

    When the musicians start an organizing campaign, threaten to strike, take a vote of no confidence or demand an audit all because of an Executive Director or Music Director, it’s time to sit up and take notice.

    The search engine is a powerful tool, it should be used more often.

  3. It would be nice to believe that would be the case but most musicians and players’ associations I know aren’t very good at conducting due diligence measures any better than board members. There are some wonderful exceptions to that rule but by and large, it isn’t the norm.

    At the same time, it would certainly be easier for any group to filter out management candidates with poor track records if all stakeholders were vested in the search process. The more eyes looking decreases the likelihood of turning blind eyes…

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