I recently received an interesting email from ‘firefly’ about embezzlement of non-profit funds. Her email, which is posted here: http://www.volunteerfd.org/phorum/read.php?f=20&i=127&t=127 goes on to talk about how their Chief, who was also Treasurer, wrote personal checks from the company account and wrote ‘bad checks’. The account was drained of over $4000, and the bank closed the account for insufficient funds.
My first thought was, ugh… The email goes on to say that the Chief was relieved of his duties, but remains as an engineer, and there may be a chance that he is still writing checks on the closed account. The questions are as follows: Is the department responsible for the ‘bad checks’? Do we need to report the incident? Are we responsible for his further actions? Finally, what can we do to stop this from happening again?
First and foremost, yes the department is responsible. When you entrust one of your members to represent the department, you are responsible for their actions. This is just as important on the business end as it is on the fire side. Last week we talked about background checks, and this is why. In this case, the Treasurer, who was also Chief, used the account to pay his personal bills. He then wrote bogus checks out of the same account. Each of those checks had the departments name and account on them, so the department is responsible.
To add fuel to the fire, the department made him a signatory on the account, and had no ‘checks and balances’. It would be slightly different if he was not authorized to use the account, but the department entrusted him with the account, so there is no doubt there is responsibility on the part of the department.
As far as reporting the incident, in most areas writing a bad check is punishable by law, both civilly and criminally. The department does have a responsibility to report the incident, otherwise they could be considered to be ‘covering it up’ and when it comes to civil penalties, and the department may have more trouble. To top it off, there is a public relations problem involved.
The department has been entrusted with monies donated by the public, and there is an expectation that the funds will be managed appropriately. The department needs to take steps against the person who misused the account to show that it will not be tolerated. It is also your responsibility to make sure there is appropriate restitution and that the bad checks are made good. This could ruin your department’s credit, and have long-term ramifications.
The bank did the right thing by closing the account, and your department should make attempts to account for each and every check. By reporting the incident, the police can help you recover your property and assure no further checks are written. If you do not report the incident and checks continue to be written on a closed account, the problem just snowballs.
The next question is how do we keep it from happening again? The first step is to make sure the person in the position is trustworthy and qualified. This can be difficult, and I am sure if this person was good enough to be your Chief, it was expected that they could be the treasurer also.
Departments need a special person as treasurer. The treasurer needs to be someone who can mind the pennies and cents, and who has the department’s best interests in mind. You want someone who has a level head, and has been known to the department for quite a while. Even with this in mind, you can still end up with an issue.
There are a couple of checks and balances you can put into the process to help protect your department. Having all checks require two signatures is one option. The downside is that it becomes tough to pay bills in a timely manner. A variation of the two signatures option is to allow checks up to $250 or some other figure to be signed by only one person. Be sure that your checks state clearly that two signatures are required.
The next step is to have some type of audit process. You should keep two copies of the records, one with the treasurer, and one with the department. The accounts should ideally be audited by a third party CPA, but could be audited by another member if that is the only option. Audits should be a minimum of yearly, but could be quarterly for the most protection. Also, audits help you when it comes time to file your tax returns or when you are looking for financing.
Another option is a ‘dishonesty bond’. A dishonesty bond is a way of ‘insuring’ the department against dishonesty from its ‘employees’. Bonding your members is relatively inexpensive ($100-$200/year) and covers your department for financial losses. One caution, there needs to be a conviction for you to recoup your financial losses. This goes to prove the point that the department has a responsibility to report the incident.
We spend a large amount of our time doing fundraising, but we also need to make sure the funds are managed and spent appropriately. I encourage you all to read the initial email I received, and look at your department. You will see that this could happen to anybody. We should all learn from firefly’s example, and not end up with a similar problem.
Read the email or discuss the article at http://www.volunteerfd.org/phorum/read.php?f=20&i=127&t=127