Embezzlement: Could It Happen in Your Homeschool Group?

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From the Ohio Society of CPAs comes this warning:

Small nonprofits ripe for embezzlement

They’re often diligent, caring workers, and yet tempted by seemingly easy cash.

Working on the inside, thieves can hit school groups, athletic leagues and churches, especially when they’re surrounded by trusting colleagues and loose security.

And according to one expert, because of the disgrace and embarrassment that the crime brings an organization, their transgressions often are not reported.

The median loss to fraud for religious, charitable and social-service organizations was $106,000 last year, according to an annual survey by the Association of Certified Fraud Examiners. “We estimate that organizations lose about 7% of their net worth to fraud each year,” said Scott Patterson, the association’s spokesman.

“There are so many people doing the good work that nobody steps back to say, ‘Should we begin looking at ourselves. We’ve grown. We better put some checks and balances in,'” said Gary Zeune, a fraud expert whose speakers bureau, “The Pros and Cons,” travels the country. “The only people who can steal you blind are those you trust and who don’t have controls.”

Smaller organizations, such as school parent-teacher organizations, are often vulnerable because neighbors and friends are reluctant to offend by suggesting that dishonesty is possible.

“This is typically mothers stealing from their own kids,” Shaw said. “The kids are the shills out there selling cookie dough or doing the walk-a-thon, and the mothers are stealing it.

“If the board is too embarrassed to have checks or balances, they need to have a new board,” she added. “But if you’re an honest person, you shouldn’t be insulted by having a second set of eyes.”

I’m sad to hear about embezzlement taking place in a homeschool groups, but I know from homeschool leaders that it can and does happen!

How can you prevent embezzlement?

1. Sign up for my newsletter (upper right corner of the website) and receive my report “Best Financial Practices for Homeschool Groups.” If you already belong to my mailing list and still want the report contact me and I’ll send you a copy.

Cover Money Mgmt HS Org2. Buy Money Management in a Homeschool Organization and read Chapter 9: Fraud: It Couldn’t Happen to Us. I outline some guidelines for groups to avoid embezzlement such as:

  • Have a separate checking account in the organization’s name
  • Appoint a treasurer
  • Have bank statements mailed to the board chair, not the treasurer
  • Have the board chair, not the treasurer to sign checks
  • Require regular financial reports
  • Prepare a budget

Keeping you safe,

Carol Topp, CPA

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5 most important, do-able tasks for homeschool nonprofit groups

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Blue Avocado asked CPA Carl Ho, who works with dozens of small nonprofits, what would be the five most important, most do-able controls for small groups:

Hint: When CPAs talk about “controls”, we mean the practices and policies that will help your organization avoid fraud and catch mistakes.

1. The first and most important consideration is to set the control environment, that is, to let everyone know, from the top down, that there are policies in place and everyone has to follow the policies. In so many organizations the top person makes exceptions for himself or herself about policies, which sets a sloppy or even unethical tone. Then other people don’t think they have to follow procedures, either, and they start cutting corners. Emphasize the importance of ethics and controls at staff meetings, and demonstrate that everyone follows the rules, all the time.

2. Define clearly who is responsible for what. It’s very common in small organizations, where not as much needs to be written down, for people to say, “I thought she was going to check the invoice.” For example, with invoices: who is responsible for checking the math? Who is responsible for approving the invoice to be paid?

3. Physical controls. Lock it up. Computers should be locked to desks, and they should be protected with passwords. Put checks in a locked drawer. Among other abuses, there are too many cases where someone comes in and takes checks from the middle of the checkbook.

4. If there’s cash involved — such as at a fundraiser or box office at a performance — have two people count all the cash together.

5. Reconciling the bank statement is a very crucial step. It’s very unlikely that someone is going to steal from you and run away forever. Reconciling the bank statement means that embezzlement can’t go on for very long.

Ideally someone other than the bookkeeper (or whoever handles the money) reconciles the bank account from an unopened statement. That’s a strong check on the person who handles the money. But in a small nonprofit there may not be a bookkeeper, and there may be only one person who does everything. In these instances someone else, such as a board member, should receive the unopened bank statement, and look it over before giving it to the bookkeeper or the sole staff person.

 Read the full article here

Cover Money Mgmt HS OrgWant some advice specific to homeschool groups?

You can find it in my new book, Money Management in a Homeschool Organization.

I devote a chapter to the practices that will help homeschool groups prevent fraud and catch mistakes (what we accountants call internal controls)

 

Carol Topp, CPA

What to do if you suspect embezzlement in your homeschool group

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I hope you never need this information, but if you suspect someone in your homeschool group is embezzling money, here’s what you need to do:

(an excerpt from my upcoming book Money Management in a Homeschool Organization: A Guide for Treasurers. Expected release date January 2014)

What to Do If You Suspect Fraud

Get help from an attorney, a CPA with fraud experience or a certified fraud examiner. If an investigation is warranted, says Allan Bachman, education manager of the Association of Certified Fraud Examiners, it should be conducted by a trained professional and not by group members with no training in such matters.

Resist the temptation to confront the suspect. If you try to handle the matter internally, you could put yourself and your group at risk for liability.

Contact the police when advised by your lawyer. This is an agonizing decision, but it should be made based on the evidence, not your personal relationship with the person you suspect.

Cooperate with the authorities. The police will review evidence, question the suspect, and determine whether he or she should be charged. If police decline to pursue the case, your attorney can advise you on a civil suit.

When communicating with your group, focus on the steps you are taking to recover the money and prevent theft. Do not comment on past actions, including the alleged theft and any current or pending charges, unless the person has been convicted.

Keep your group functioning as normally as possible. A legal case can take a year or longer to resolve. You don’t want to put your events and other activities on hold.[i]

 

Please do not let embezzlement go unpunished. The guilty party will just go onto another organization and could do more damage. Seek to get the embezzled funds paid back to you.

Carol Topp



[i] Ghezzi, Patti. “Protect Your Parent Group From Embezzlement.” PTO Today. http://www.ptotoday.com/pto-today-articles/article/1180-protect-your-parent-group-from-embezzlement. Accessed October 29, 2013.