Our view: Nonprofits must increase financial oversight

Fraud is a three-legged stool, says Bill Simer, a Spokane accounting professional who serves on many community boards. Understanding all three components will help people better understand why nonprofits are so vulnerable to embezzlement. The latest victim: Mid-City Concerns’ Meals on Wheels.

First leg: Opportunity. If money is easily accessible, and if there isn’t much financial oversight, then an employee might think. “I can get my hand in the cookie jar and no one will notice,” Simer said.

Second leg: Justification. Employees who work at nonprofits toil long hours with traditionally low pay. So an embezzling employee can justify that “I’m working real hard, and they don’t pay me enough.”

Third leg: Need. Students in ethics classes often grapple with this dilemma. Would you steal food if your family were in danger of starving? Most say yes. Those who embezzle from nonprofits, when finally caught, can usually articulate a need that prompted them to steal. Some cite the need for mortgage money. Others might explain they needed a boat like the one owned by the neighbors.

Nonprofits can best protect themselves by kicking out just one leg of the stool: Opportunity. The more eyes on the books, the easier it is to spot the hands reaching into that cookie jar.

So nonprofits should ask onto their boards some people with financial expertise. Not just the usual suspects, such as accountants and bankers, but also small business owners who have experience balancing their own books.

Requiring board members to sign checks, as well as requiring them to review bank and credit card statements, will also limit opportunity.

The good news about fraud: It almost always ends. Embezzlers often start out stealing small amounts. They don’t get caught so they grow cocky. They steal larger amounts and finally someone notices. Or the people who suspect or even collude within the organization finally tell on the embezzlers. Either they have a falling out and wish revenge, or their conscience kicks in.

The Mid-City Concerns’ Meals on Wheels embezzlement case should put on alert all Inland Northwest nonprofits. Check out your books and your safeguards. When money is stolen from a nonprofit, the loss isn’t just financial. Embezzlers steal away people’s trust in the organization – and its ability to do good work in the community.