Board Role in Asset Protection (Part 1 of 2)


In a meeting of the components of a national association, odds are good you will hear the whispers, "Did you know about the embezzlement at XYZ association?" The amounts are sometimes staggering, exceeding $1 million. Equally surprising is how the board was oblivious to the losses occurring over multiple years. The responsibility is shared between the Board of Directors and professional staff. As partners and fiduciaries on behalf of the membership, they are charged with protecting resources.

When asked about the budget, directors may stutter. Or say, "Staff watch the budget for us." I asked a treasurer about the size of the organization's budget and she responded, "I haven't looked at it recently; I don't really know." (It was a million dollar association.)

Some directors hone in on the smaller line items ("What's this $75 expense?"). Many don't know the size of the annual budget, the largest line items and the value of assets. These three numbers would be the start for protecting resources.

Diversions

Reporting a loss of funds is a requirement of the IRS on Form 990. The agency describes a diversion as any unauthorized conversion or use of assets other than for the organization's authorized purposes, including but not limited to embezzlement or theft. Form 990 requires reporting diversions by officers, directors, trustees, employees, volunteers, independent contractors or any other person. Most are attributed to theft or embezzlement, sometimes leading to the loss of tens of millions of dollars to a single organization.

A Washington Post article in 2008 highlighted the "thefts, scams and phantom purchases" in nonprofits. The analysis identified more than 1,000 nonprofit organizations reporting a "significant diversion" of assets on Form 990. The article reports the IRS said that 285 diversions totaling $170 million had been disclosed in one year alone.

. . . TO BE CONTINUED NEXT MONTH, in the September newsletter.

Bob Harris, CAE, provides free tips and templates at www.nonprofitcenter.com and is scheduled to address the FIAE Convention on several topics including: "Stellar Strategic Planning," where State Executives are invited to bring their own strategic plans and mission statements for private consults with Bob, and " Building a Better Board." He will also moderate one of the roundtable sessions on "Administration." Bob is nationally recognized for his "real life" approach to improving associations.

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