Cash Presents Embezzlement Risks For Large And Small Nonprofits

Written exclusively for My Community Workplace for Not-For-Profits Organizations

State police charged a Michigan man with embezzlement from the Fraternal Order of Eagles, a nonprofit for which he served as the hospitality chair.

According to the police, the man failed to deposit $3,000 collected at the organization's summer event. Investigators state the man kept the money, despite a number of the organization's members questioning him about it.

The accused eventually surrendered himself to police. Chris Clor "Grand Traverse Co. Man Charged With Embezzling from Nonprofit" (May 21, 2019).

Commentary and Checklist

The theft described above is one that any nonprofit could face and most likely would find difficult to prevent from occurring.

Even if an organization assigns two or more individuals to account for funds collected at a fundraising event, it is not uncommon for just one person to be responsible for depositing that money. Making a policy that two people must go together to deposit funds could make a difference, as well as a procedure to verify the time and date of a deposit.

As a result of the above organization's attempt to get to the bottom of the issue, it was eventually able to discover the theft. The nonprofit's diligence may prevent future fraud. Statistics tell us that successful theft schemes typically encourage the thief to steal again, and usually in larger amounts, so a thwarted attempt is a step in the right direction.

Whether you are collecting cash for a fundraiser or operating a petty cash box for minor purchases, the use of cash will always present an element of risk. There are steps you can take, however, to help reduce the fraud and theft risk associated with cash.

Here are some suggestions for overseeing cash transactions and other financial fraud schemes:

  • Have an auditing system that oversees the activities of all employees without exception. No one should be exempt from financial oversight, no matter their status or length of time with the organization.
  • Implement cash controls during fundraising events and stress the importance of following them. For example, always have two people present when collecting money; utilize "funds received" forms that they must sign at the end of their shift; and do not let members take money home following an event.
  • Limit access to petty cash. Make sure no money is given without proper request forms and/or receipts.
  • Establish a finance committee, comprised of the president and two board members, who are tasked with reviewing bank statements and petty cash disbursements every month. Alter the membership of this committee often.
  • Make sure everyone involved in the financial activity of the organization understands your financial policies and procedures. Clearly stating your controls upfront and in writing communicates to everyone that there will be little opportunity for theft in your organization.
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