Fraud has been increasing at a rapid rate, and it is particularly disheartening to learn about people stealing from the youth athletic organizations they are managing. A nonprofit that does not open its books for inquiry and inspection is a serious red flag.
The mode of theft and red flags are fairly typical in frauds involving smaller organizations that usually lack adequate internal controls and checks and balances:
- Checks were made payable to “cash”;
- The league had a debit card tied to the operating bank account;
- League fees were found to have been paid to an individual and not in the name of the league;
- The league refused to share the financial information;
- Tax returns are prepared by league board members; and
- Board members have a fiduciary responsibility to protect the assets of the organization, and they are the ones that should ensure some form of accounting internal controls. If they don’t, parents should demand such accountability.
Sound accounting policies for a small organization would prohibit payments to cash and not allow anyone to have a debit card tied to the league bank account, or a credit card with an automatic withdrawal payment. Each disbursement should be evidenced by an invoice.
League application forms should clearly state that checks should be made payable to the name of the league. Taking cash payment should be discouraged, but in smaller leagues this is difficult. Whenever cash in involved in smaller organizations, there are usually vulnerabilities.
The league books should be open to any board member or parent. Why not? What is someone hiding? Failing to open one’s books to an interested party is like announcing to the world that there is an issue that merits examination. It is one of the largest red flags.
Every nonprofit organization should have a reputable accountant prepare the income tax returns since most board members, or even league treasurers, are not versed in nonprofit income tax return preparation.
For more information on fraud prevention contact your MarksNelson professional at 816-743-7700.