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The story is all too familiar: Investigators descend on a small business, nonprofit organization or local fire company to haul away computers and boxes of records. Eventually, someone gets charged with embezzlement.
You’ve probably heard it all before. So has Misericordia University business professor Fred Croop.
A professional accountant for 45 years, Croop has advice for organizations looking to avoid such situations. Last week, he presented a workshop on improved internal controls at the Service Unites conference in Atlanta for nonprofit, government, business and civic leaders.
The following interview has been edited for length.
Q: How did you become interested in the topic of internal controls for nonprofits?
A: About five or six years ago I finally got fed up with so many news reports of money missing in volunteer organizations — volunteer fire companies going defunct or being decertified; youth athletic organizations robbed of the tens of thousands of dollars that had been raised for the benefit of the kids; treasurers of PTOs succumbing to human nature resulting in tremendous damage not only to the PTOs and the schoolchildren, but also the innocent members of the treasurers’ families.
Q: So what did you do next?
A: As an accountant I knew this was all unnecessary because some basic internal accounting controls would prevent or at least minimize the damages in almost all the cases.
I started writing op-eds about the need for organizations to implement basic controls and how to create a few that would have the most impact.
Later, I involved the accounting students I teach at Misericordia (in) service learning that would benefit our community by creating a manual for volunteer organizations that adapted standard internal accounting controls. The manual is made freely available in the Community area of the Misericordia website.
Q: We have had many cases in our area of individuals at volunteer fire companies and similar organizations being investigated for fraud. Why are these organizations so vulnerable?
A: Let me start responding to this by the best quote I have that came from a county white collar crimes detective: “No one is watching.” I have interviewed dozens of DAs, white (collar crime detectives) detectives and state legislators throughout Pennsylvania and they all agree.
Q: What do you mean by watching?
A: Putting into place some basic internal accounting controls where at least two independent people are involved in every aspect of the financial activities of the organization. Here are the priorities:
• More than one person should be involved in every activity and transaction and two people involved should not be closely related.
• Someone other than the treasurer should prepare a monthly bank reconciliation.
• Never have only one person count cash.
• Rotate the treasurer responsibility.
• Require a treasurer’s report at every meeting.
Q: How widespread is the problem?
A: The work my students and I have been doing has been noticed throughout the U.S and Canada generating many emails I receive and the story is the same everywhere.
However, let me offer that all that I have found indicates that the problem is much bigger than what you would surmise based upon the cases that do make the news.