Wednesday, November 11, 2009

Leaders Didn't Notice Missing Cash

The not-for profit Big Brothers Big Sisters chapter in Lexington, KY is out $435,000, apparently embezzled by a former office manager, who forged checks to four accomplices over the span of year. About half of the pilfered money was taken in the two months before a bank employee became suspicious and notified the Board President.

To make matters worse, charitable giving has been down for the past year, and earlier this year the agency laid off a half-dozen staff and the remaining staff took a seven-percent pay cut. The Lexington Herald-Leader reported: ". . .even as they pinched pennies, nobody in the executive office or on the 28-member board noticed nearly half-a-million dollars being siphoned from the agency's accounts."

There are several lessons to be learned from this situation. All the standard book-keeping practices in the world are useless if someone is not following them and paying attention.

When the staff is not doing its job, the Board has a responsibility to notice and ask what's going on. If you agree to serve on a Board and all you want is to pad your social resume, shame on you. If you don't want to make "waves" go lay on a beach somewhere and don't take up space on the board of a worthwhile organization.

All of that probably isn't going to help, but I feel better having said it. This is not the first time an employee of a significant not-for-profit organization has taken advantage of people's good will. We at ICM, have helped a number of such organizations through this.

Now, the real lessons. Activate your crisis management team. Determine what processes broke down and why no one noticed and take responsibility for it. Be prepared to meet with staff and key volunteers, major funding sources and the clients of your agency. Do that before they read about it in the local newspaper or see the story on TV. Take responsibility for what happened and be prepared to explain in general terms what is being done to make sure it never happens again.

In each of those meetings be prepared to reassure each of those stakeholders how you're going to maintain service or what cuts will be necessary and for how long service will be curtailed.

DO NOT whine and complain and blame anyone else. The person who stole the money is only slightly more responsible, because the management and overseers of not-for-profits are assumed to be paying attention and when anything out of the ordinary happens those people should be investigating and demanding answers and solutions.

The founder of ICM and I were helping a major not-for-profit who had been the victim of only a $50,000 theft. Before the loss became public, the crisis team had been working for a week on what to do and say. At one meeting the chief fund raiser said enthusiastically, the loss was "an opportunity" for a special fund raising campaign to play on the sympathy of the community. ICM Founder Bob Irvine had one knee on the conference table on his way to "shake" the fund raiser when I got my hand on his belt and pulled him back into his chair. We still laugh about it, but that was not a good idea.

The news media seldom ask all the right questions, but that doesn't mean the Board should do the same. A non-profit has to file an annual report, usually compiled by an outside accounting firm. That report includes a sworn affidavit that affirms the books are in order. It always amazes me that no reporter ever asks how that annual audit could miss something as big as 400,000 misappropriated funds and the follow-up question "are you going to replace that auditing company?"

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