Show Me The Money Monday

The economic downturn doesn’t appear to be having much impact on nonprofit thieving. Last week the Woodruff Arts Center (WAC), parent organization of the Atlanta Symphony Orchestra (ASO), announced that they paid nearly $1.5 million to a fake company for more than five years and it just so happens that the company was connected to a former employee. In English, that means WAC had an embezzler in their midst for half a decade.

To date, the name of the alleged embezzler has yet to be revealed but the clues are pointing toward one of the recently released members from the ASO’s upper management the culprit (be sure to see the update at the end of the article).

On one hand, it’s good that the WAC’s internal audits eventually uncovered the embezzler but at the same time, if the culprit is a former ASO employee, then this ordeal has the very real potential for damaging an already tenuous credibility for the organization’s executive management. An article in the 11/27/2012 edition of the Atlanta Journal Constitution by Christian Boone and Howard Pousner reports that ASO President Stanley Romanstein “declined comment on the challenges of fund-raising after Tuesday’s news [about the embezzler].”

And it appears that others in the community believe WAC may not be able to emerge from the scandal unscathed. The 11/28/2012 edition of the Atlanta Journal Constitution published an article by Bo Emerson that includes perspective that casts blame on unnecessarily lackadaisical fraud prevention measures.

Ferdinand Levy, a former dean of Georgia Tech’s College of Management and subscriber of the Atlanta Symphony Orchestra, was critical of the Woodruff.

“There is no excuse for an organization the size of WAC not to have first-class internal controls to prevent fraud,” Levy said. “This negligence showing a lack of oversight will certainly affect fundraising, especially with national foundations.”

Remember Sarbanes-Oxley?

It seems so long ago, but the post 9-11 economic downturn and subsequent corporate scandals (remember Enron?) sparked a piece of Federal legislation known as the Sarbanes–Oxley Act, introduced in the House of Representatives as the Corporate and Auditing Accountability, Responsibility, and Transparency Act of 2002.

This Federal law set into motion a series of enhanced accounting checks and balances to help prevent corporate executives from committing fraud along with providing added protections for corporate whistle blowers. Interestingly enough, Sarbanes-Oxley contains provisions that exempt nonprofit organizations from being subject to the accounting requirements due mostly to the unreasonable burden it would place on smaller and mid size budget organizations.

This isn’t the first time we’ve referenced Sarbanes-Oxley in response to orchestra embezzlers and this latest scandal is yet another wakeup call to the field that the larger budget institutions need to begin voluntarily implementing these measures.

In the end, if we, as a field, genuinely believe that our organizations have a sizeable positive impact on the local economy then perhaps it is time for the larger budget institutions to begin operating by improved standards. Perhaps unsurprisingly, all of these enhancements will cost money so any organizations looking for a desperately needed and highly focused internal improvement project that requires dedicated foundation support; this is a good place to begin.