Financial mismanagement: The other smoldering fire
Put controls in place to prevent fire department fraud, embezzlement and other financial (and PR) nightmares
When we think about mitigating risk for firefighters and fire departments, our mind typically goes to fireground safety, rapid-intervention teams (RITs), mayday training and other emergency issues where we seek to protect firefighters from the risk of injury and death. Exciting, right?
But there’s one glaring issue missing from this list that poses a significant threat to fire departments: financial mismanagement. Sure, not as sexy a topic, but grab another coffee and take a few minutes to focus on this incredible risk blind spot facing all fire departments.
Eye on embezzlement
If you didn’t think this was a pervasive issue, check out these examples from FireRescue1.com and Curt Varone's Fire Law Blog:
- The treasurer for Akron Firefighters, IAFF Local 330, was indicted for stealing $600,000 from the local.
- The Chief Administrative Officer at the Virginia Department of Fire Programs charged with four felony counts of obtaining money under false pretenses.
- A firefighter was charged with stealing $25,583 from the San Bruno Professional Firefighters Association. The thefts were from a fund earmarked to purchase toys for disadvantaged youths.
- The president of a volunteer fire company in Virginia charged with embezzling more than $373,000 over three years.
- A treasuer who embezzled $26,000 from a Pennsylvania fire company relief fund.
- South Carolina fire chief and his wife accused of embezzling thousands from the volunteer fire company they oversaw.
- The treasurer who wrote more than 130 fire department checks to two of his businesses, ultimately embezzling $1.1 million from the fire department.
Need I go on? The problem is so big, there’s an entire page dedicated to fire service embezzlement here.
Lack of policy opens the door to bad behavior
Fire agency financial risk comes from a few areas, and it all starts with a lack of good policy. Without sound financial control policies, mismanagement becomes the standard operating practice. And financial mismanagement can open the door to embezzlement, fraud and theft of funds from municipal, fire department, district or union local accounts.
Financial control policies are written, implemented and trained on to mitigate the risk of financial loss to a fire agency. They save members from themselves, and they keep the department from economic loss, public relations nightmares, litigation and a damaged reputation. Ever try to run a fundraising campaign after your fire chief gets arrested for stealing from the fund? Don't.
As for saving members from themselves, it’s safe to say most members observe rules and controls – when they are in place. Where there are no controls, some members may take advantage of gaps. This behavior is especially true when it comes to the opportunity for financial gain. Our brothers and sisters in the fire service, generally, have the best of intentions; however, combine a lack of financial controls with adverse personal circumstances, a misplaced sense of entitlement or flat-out greed, and the result is predictable.
Basic account management and auditing
While the issue impacts volunteer departments, fire districts and union locals more frequently, don't forget about career agencies. Any time a fund or account exists, controlled by an individual, with no associated financial control, the opportunity for theft exists.
Regardless of what you call it, financial control policies exist to control agency and local union finances. These policies break down into two main parts: account management and account audits. Following are the key components to consider:
- Account management
- Who can access the account: Limited access, preferably the treasurer
- Reasons for access:
- Allowable/proper sources of funds in the account
- Allowable purposes for disbursement
- How to access
- Obtain designated approvals before disbursing funds:
- Report and have the membership approve all income and deposits from any source at regular meetings.
- Announce and have the membership approve all disbursements before checks are cut, at regular meetings.
- Standards should exist for necessary expenditures between regular meetings, and report all such spending at the next regular meeting.
- At a minimum, the executive committee's approval for all the above should be required and then reported at the next regular meeting.
- Reporting and recordkeeping
- Account audit
- Who audits? Preferably a financial and audit committee should be established and have the specific responsibility for the inspection of accounts.
- Audit schedule:
- Preferably the audit committee should perform a quarterly audit.
- There should be an annual, independent audit performed by a certified public accountant who is not a member of the agency.
- Audit procedure
When working through the audit, it’s important to pay special attention to:
- The chief's discretionary accounts;
- Petty cash accounts;
- Credit/charge card accounts; and
- Accounts used to reimburse members for expenditures related to agency business or travel.
Putting proper financial controls in place, then implementing, training and observing them is the best way to mitigate the most common risk experienced by fire agencies. As budgets get tighter, and members come under a more considerable financial strain, the importance of these policies only increases.
Editor’s Note: How does your department protect against financial mismanagement? Share your advice in the comments below.