Avoiding the Wrong Kind of Publicity
By C. Yvonne Chenier, Q.C.
Newspaper headlines frequently draw the reader’s attention to employee theft from charities and not-for- profit organizations. Recently, there was a headline noting that the former Finance Director at the Royal Academy of Music has been jailed for fraud in the UK. A recent Calgary Herald headline indicated that the former Art Gallery of Calgary CEO has been charged with fraud. Very recent headlines in Ottawa revealed that former Blessed Sacrament Pastor Father Joe faces fraud theft and money laundering charges. From a review of these headlines and many others one might conclude that theft is rampant in charities.
What is being done about this? In the recent case in Ottawa the Archbishop has indicated that “the Archdiocese of Ottawa introduced a strict financial protocol to handle the governing of parish moneys”. In the case of the Art Gallery of Calgary they launched a civil suit against the CEO trying to recover the allegedly stolen funds. What is common about these cases and most of the others that one might read about are that there were little or no controls over spending by the employee involved and no oversight or double accounting checks with regard to the cheques issued and signed by the employee in question.
What should be done to prevent this? Charities and not-for profit organizations should ensure that financial controls are in place in their organization for all employees and officers and any board members involved in the finances. Not to have these controls in place is to risk seeing the name of the organization reported in the headlines of a newspaper or the subject of a documentary on television regarding employee theft and charity fraud. Luckily there are many resources available for charities who wish to avail themselves of sound financial control practices to prevent such a horror occurring. Many, such as the one contained on the website of the Muttart Foundation, are free to any charity who wants to avail themselves of such good information. It is located at http://www.muttart.org/sites/default/files/downloads/publications/financial_responsibilities.pdf . In one of the checklists it is suggested that an organization should ask certain questions and depending on the answer, take immediate action to make sure proper financial management controls are in place.
Some of these questions are:
1. Has the board adopted a written policy statement covering the responsibilities and authorities that it has delegated to staff members?
2. Does the board periodically review the activity of the employees to ensure that they have not exceeded the scope of their authority?
3. Does the board review the financial statements on a regular basis?
4. Does the board check that its activities remain consistent with those indicated in its operating budget?
5. Does the board review on a monthly or quarterly basis, actual income and expenditure and compare them with the current budget in place?
6. Have the organization’s books been set up by a competent bookkeeper or accountant?
7. Does the board know who has custody and control of unused cheques?
8. Are all disbursements, except those from petty cash, made by pre-numbered cheques?
9. Are voided cheques preserved and filed after appropriate mutilation?
10. Are dual signatures required on cheques over a stated amount?
11. Has the board of directors authorized the amount of the petty cash fund and adopted a policy as to the nature of the expenditures which should be paid from this fund?
12. Is adequate supporting documentation required for all petty cash disbursements
13. Is access to petty cash limited to one person?
14. If the board of directors has established a dollar limit on petty cash disbursements, is such a limit being observed?
15. If any regularities are discovered what is the policy and procedure to go through for the organization?
The last point is important because one of the common elements in many of the media reports reviewed is that the members go to the media before the organization goes to the police for an investigation. It is not until the headlines appear in the paper that any kind of police investigation is started. No organization wants to find itself in this situation, especially a board member who may be unaware and potentially feels responsible for any defalcation in the organization’s management.