There’s a fascinating article by Joe Patti at ArtsHacker that examines the problems related to just how easy it is for employees, even volunteers, to embezzle from nonprofit performing arts organizations. I can’t think of a year that’s gone by since Adaptistration started where there weren’t one or more instances of an employee stealing from the institution.
Every couple months the treasurer tells our board of directors how easy it would be to embezzle funds due to the lack of sufficient checks and balances…Every time she brings the topic up, everyone laughs because she is a trustworthy grandmotherly type. It is inconceivable that she would actually perpetrate the things she suggests.
But of course, that is the problem. The reason why non-profit fraud is so easy to commit is because few people want to question the honesty of a person who has devoted their time to helping a charitable organization do good in the community.
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 and Patti’s article underscores just how important it is for organizations to begin adopting tighter measures on a voluntary basis.
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, these enhancements will cost money so if there was ever a highly-focused internal improvement project that requires dedicated foundation support; this is certainly it.
In the meantime, drop by Patti’s post where he offers up some suggestions and resources for improving your internal controls.