Last October, The Washington Post reported that “more than a thousand U.S. nonprofits have acknowledged losses of a quarter million dollars or more, because of theft, investment fraud, embezzlement or other unauthorized use of funds.”
And that’s just the tip of the iceberg.
Joe Stevens, a Washington Post investigative reporter, noted:
“A lot of these schemes involve insiders, executive directors, bookkeepers, very trusted long-time volunteers sometimes, and you find ten million here, ten million there, but it also goes all the way down to your neighborhood groups, boy scout groups, volunteer fire departments. . . nonprofits across the board are losing a lot of money.”
One estimate, by Harvard University's Houser Center for Nonprofit Organizations, suggests that fraud losses among U.S. nonprofits are approximately $40 billion a year.
Around the same time, Eugene Fram, Professor Emeritus, Saunders College of Business, Rochester Institute of Technology, reported on The Huffington Post website that vigilant nonprofit boards might prevent many of these losses.
He’s right. No pun intended, the “buck” stops with the board.
Every member of a nonprofit board, regardless of how large or how small, should know their fiduciary responsibilities to the organization and to the community it serves.
One of the key responsibilities of board members is to maintain financial accountability of their organization. I contend that it is the most important responsibility.
Does every member of your board know how to read and interpret your financial statements? If not, why not?
Does your orientation for new board members include a "deep dive" tutorial on your financial statements? Do you have an orientation for new board members?
Are financial statements reviewed at every board meeting? Is adequate time given to this process and do all your board members ask questions and participate in discussions before approving the financials?
Do they receive financials in advance of the board meeting?
Finally, and most importantly, do your board members understand the fiduciary and legal responsibilities – duty of care, duty of loyalty, duty of obedience – that go with nonprofit board membership?