Carrie Minnich earlier this month published a blog post about fraud in nonprofits. She points out that organizations can be targets of fraud due to limited staff and tight budgets. We often believe that it won’t happen to us; however, there have been 2,410 cases (foreign and domestic) in a 22 month period according to the Association of Certified Fraud Examiners. Carrie sites the Association of Certified Fraud Examiners report which noted that on average a nonprofit loses 5% revenue in any given year from fraud. One key step to reduce fraud risks is to have strong internal financial controls, said Carrie.
Reflections on 2014 Board Leadership Forum, submitted by Carrie Minnich. This is the last review by Carrie.
Executive Succession: Don’t Leave it to Chance! (Tom Adams)
According to Mr. Adams, 67% of nonprofit executives plan to leave in less than four years.
(10% in less than one year,
24% in one to two years,
33% in three to four years, and
33% in more than five years.
With the increase in the number of retiring executives, nonprofits need to plan for succession to ensure organizational sustainability.
Not only will planning for the departure of the organization’s leader mitigate risk but will also increase the transition success.
Three approaches to succession planning were discussed.
Succession essentials – Having an executive backup plan and succession policy.
Leader development – Developing the talent pool of possible replacements; internal succession.
Departure-defined – An executive director has decided that he/she will leave in two to five years. The organization does not publicly announce the executive director’s intentions but uses the next two to three years to plan for the transition.
It was recommended to combine succession planning and sustainability planning.
In addition to a succession plan for the organization’s leader, sustainability planning includes intentionally looking at the organization’s focus, asking if the right people are involved, how much cash is in the bank, and who does the organization need to work with to be successful.
Many boards are currently or will be facing the need for executive transition in the near future. Your board should be proactive in planning for the transition in your organization’s leadership so that your organization can have a smooth transition.
Reflections on 2014 Board Leadership Forum, submitted by Carrie Minnich. This is the sixth of several reviews by Carrie and the session on Fraud was also reviewed by Laura Boyer.
The Anatomy of a Fraud (Lawrence Hoffman)
Working in public accounting, fraud seminars and especially those that give specifics as to how the fraud was initiated and how it was caught, always interests me. This session was based on an actual fraud investigation by the speaker, Lawrence Hoffman.
Nonprofit fraud is in the spotlight.
More and more we see in the news that fraud has occurred in a nonprofit organization. The IRS redesigned From 990 (the nonprofit organization tax return) in 2008 to add additional governance questions. It even added the question “Did the organization become aware during the year of a significant diversion of the organizations’ assets?” In other words, did fraud occur?
The case described in the session included a CTO (Chief technology Officer), who during his tenure at the organization (7 years), paid a related company for a significant amount of IT equipment and software that could not be located.
It was determined that over 150 servers were “purchased” and multiple copies of the same enterprise-level software. After the CTO returned back to Russia citing “personal reasons” the new CTO (the whistle-blower) could not locate many of the equipment purchases.
It is important for nonprofit boards to be aware of the possibility of fraud occurring within their organization and how to prevent it. Often times, nonprofit organizations have an atmosphere of trust and a focus on the mission, rather than making sure proper controls are in place.
Some of the steps organizations can implement to deter fraud are the following: