“A federal judge on Wednesday sentenced Michael Meakem, the former chief executive of a Connecticut nonprofit, to two years in prison for siphoning more than $ 680,000 from the organization’s accounts over eight years,” -The Middletown (Connecticut) Press
“Former Clinton County United Way manager Maria Garlick, who was indicted and pleaded guilty to stealing more than $ 21,000 from the agency, was sentenced to four to 23 months in the Clinton County Correctional Facility. ” -Loch Haven (Pennsylvania) Express
What do these incidents have in common? The boards, staff and clients of these nonprofits have been cheated. And it speaks to the accounting errors – exacerbated by the COVID-19 pandemic – that often plague organizations created to do good.
It is natural for people involved in a nonprofit organization to believe or expect everyone to share their motivations for helping others. But what about when these motives are or become criminal?
This is the goal of careful and rigorous accounting procedures and controls. Most organizations understand the importance of these controls, but that doesn’t mean that they are always followed or that mistakes are not made.
Be aware of these nonprofit accounting issues and avoid these mistakes.
- COVID-19 has caused or caused many employees to leave their traditional workplace to work from home. With this change comes the implications of auditing financial statements – and the potential for fraud that exists in this new environment.
One example, as reported by the Journal of Accountancy in early 2021, “… auditors may have to review two sets of internal controls (at the office before the pandemic and remotely during the pandemic) for nonprofits including operations have changed. how to work from home during the pandemic. And the high potential for fraud in today’s environment must be carefully considered in risk assessments. “
- Have a formal, written, and rigorous accounting policy – and stick to it. Too many nonprofits ignore this step. This is essential for daily activities, and should absolutely be followed at times when stress – like COVID-19, a major fundraising campaign, natural disaster, or other event – triggers the impulse to say, “Don’t care. details now; We will find out later.
To ensure consistency, legality and freedom from fraud, it is essential to adhere to accounting policies at all times, especially in times of stress. These protocols cannot be performed in-house by employees who believe they are only experienced in accounting or bookkeeping. You need professionals to guide you through the thicket of IRS rules and regulations, generally accepted accounting principles; Financial Accounting Standards Council; Accounting Standards Board of Government – to name a few.
- Internal controls are a transcendent problem, and mistakes often occur when one person has too much authority over the finances of the organization. Most people are indeed trustworthy, but those who are not can kill an organization.
Does your organization allow only one person to sign checks? If so, it’s a loaded cannon that rolls freely across a ship’s deck.
Have background checks been carried out on all employees involved in the finances of the organization or were they hired on the word of a friend, donor or board member who recommended them? How often is the organization’s supplier list checked? A non-existent business in the accounts receivable column may look exactly like a legitimate business.
- Reporting in-kind contributions is a challenge. This can be tricky for nonprofits, as many people and organizations want to volunteer their time, and accounting can be overlooked or ignored for such contributions. If a non-profit organization receives professional services, they should be recorded as in-kind contributions. Precisely. And take knowledge demand.
Think of nonprofit accounting as a surface, these suggestions being just a scratch on that surface. They are important, but by no means exclusive. If you hold a senior position in a nonprofit organization, consult with accountants with experience in the field. It’s a small price to pay to avoid the big price of getting into trouble.
Jimmy Rodefer is CEO of Rodefer Moss & Co., headquartered in Knoxville and with offices in Tennessee and Virginia. Contact him at www.rodefermoss.com/Knoxville.