Implement Financial Oversight Measures Now To Avoid Embezzlement Harms Later

Written exclusively for My Community Workplace for Not-For-Profits Organizations

A North Carolina nonprofit, that assists cancer patients with transportation, protheses, and other support, is at the center of an embezzlement scandal. Its former executive director faces federal charges of stealing more than $136,000 from the organization.

Court documents show that over a period of six years, the former director made unauthorized withdrawals from the nonprofit's bank account, concealing the withdrawals as additional paychecks. Prosecutors also accuse the woman of failing to pay the taxes she withheld from employee paychecks, as well as submitting false reports to the IRS on the taxes withheld from her own paycheck. Kara Fohner "Former Cancer Services executive director accused of embezzlement" www.gastonazette.com (Mar. 19, 2024).

 

Commentary and Checklist

 

For the embezzlement in the above case to have continued for so long, if the allegations are proven true, the executive director must have had unchecked, unmonitored access to financial and payroll operations. The nonprofit's failure to establish and/or strictly follow financial oversight protocols, whether due to misguided trust or negligence, led to its financial loss.

A primary financial control that every nonprofit must maintain is the requirement that all financial operations be reviewed by more than one person.

Implement common sense measures like separating the task of funds disbursement from account reconciliation by appointing two different individuals to carry out each duty. Again, in payroll operations, separate the responsibility of withholding employment taxes from that of paying those taxes. In addition, regularly audit your oversight measures to make sure everyone in your organization is strictly following your financial procedures.

Following procedures can avoid the harms that embezzlement can cause:

 

·      Bankruptcy

·      Business closure

·      Loss of revenue/profit

·      Loss of credit

·      Loss of key employees/customers/clients/vendors fearing closure/bankruptcy

·      Layoffs/terminations

·      Inability to pay costs associated with operation including rent, loan payments, wages, bonuses, raises, benefits, training, and other opportunities of employment.  

·      Damage to the ownership/managements' reputation

·      Litigation from shareholders/co-owners/partners/board members for failure to provide oversight or breach of duty

·      Litigation from employees/customers/vendors related to wages, amounts due, breach of contract, and/or failure to deliver upon other commitments

·      Employee resentment and frustration

·      Alienation of customers/clients

·      Inability to attract quality job candidates or board members

·      Other financial and reputational harms

 

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