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.

Adaptistration People 132To 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.

Update: 12/3/2012 4:20pm CT

Atlanta Symphony Orchestra Senior Director, Communications, Melissa A.E. Sanders has provided confirmation, by name, that none of the WAC employees who worked within the ASO and left their position as a result of senior management restructuring last month were involved with the embezzling. Many thanks to Ms. Sanders for providing the sort of detailed confirmation that has yet to be provided by other statements from the WAC.

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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2 thoughts on “Show Me The Money Monday

  1. This embezzlement news comes juxtaposed with the recent draconian contract forced on the ASO’s musicians reducing personnel from 95 to 88, wages by 31%, and dumping the orchestra from 52-weeks paid/yr. to 41. Some in ASO’s management took a measly 6% cut in salaries.

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