Easy Office Blog

The Chronicle of Philanthropy is reporting another sad story of non-profit fraud.  The struggling Mark Twain House and Museum in Hartford, CT has been fighting insolvency for some time.  Now, to add to their woes, their controller for the past 20 years has admitted to systematically stealing over $1 million from the organization over the past decade.

She used a common trick - ghost employees.  For those of us in the sector who have seasonal workers, or a large part-time staff, ghost employees can be a real problem.  They are very common on farms and in agricultural situations.  The bookkeeper simply "invents" an employee and pays them.  Management often doesn't notice as payroll gets entered into the accounting system in a lump sum.

There are several things you can do to avoid this.  However the most imporant is that a pre-payroll register should be approved and signed - and not necessarily by the Executive Director who may be too far removed from the details to sign appropriately.  Payroll should be broken into chunks by department by person; so that the people and amounts can be meaningfully looked at and approved.

There is more good than bad in our sector, but it always pays to keep your eyes open and your systems water-tight.

Fraud is all too common.  Typically as non-profits we take an overly trusting stance.  We like to believe the best about people and are generally a hopeful group.  In the arena of fraud, we need to become a bit more cynical.

The best way to avoid fraud is to ensure you have proper controls to prevent fraud.  Sometimes the best of people - when presented with an opportunity - will make bad decisions.  Proper controls give everyone peace of mind that they won't be tempted, and if they are, they are guaranteed to get caught.

The Chronicle of Philanthropy ran an article on September 15th about a case of persistent and consistent fraud.  The Dean of the St. John's Institute for Asian Studies in Queens is accused of systematically stealing over $1M.  Her actions were caught during a routine internal audit.  Internal audits and external audits are essential.  Typically if people know they will get caught, this creates enough of a deterrent to prevent fraud.  However in this case, the Dean thought she had found a loophole.  In fact, she may have got away with it for a long time.  Her actual downfall was an expense report that included personal charges.  As they began to investigate this small issue, the larger picture emerged.  Her greed ultimately was her downfall.  St. John's is now reviewing their internal control structure in hopes to avoid this in the future.

Trust is an important quality, but when it comes to money and financial matters, checks and balances rule the day.