Hoovler urges nonprofits to safeguard expenditures

Orange County District Attorney David M. Hoovler urges local nonprofits to review and implement sufficient internal controls regarding money and expenditures. The request comes after the former financial secretary of the Washington Heights Fire Company pled guilty to grand larceny in the third degree for stealing $17,947 from the parade fund. “Prosecution of those who take advantage of lax fiscal controls will necessarily come after painful losses have already been sustained,” Hoovler’s announcement stated. He shared a link to the National Council of Nonprofits, which offers nonprofits guidance on how to protect their operations.

Hoovler defined “internal controls” as “financial management practices that are systematically used to prevent misuse and misappropriation of assets” to offer “checks and balances on staff (and sometimes board members) and/or outside vendors, in order to reduce the risk of misappropriation of funds/assets.”

Hoovler went on to give examples of a basic internal control, such as requiring two signatures on a check to prevent one person from having sole authority for writing checks on the nonprofit’s behalf, and locking office doors when no one is monitoring the entrance to minimize the risk of theft.

More examples of internal control policies:

• A policy requiring that employees may only be reimbursed for expenses that are approved in advance, in writing.

• A “segregation of duties” policy requiring that the person who logs in checks received in the mail is not the same person who is responsible for depositing checks. Similarly, the same person should not both prepare the payroll, and also distribute or have custody of the payroll checks.

• A periodic review by an objective person of the list of all vendors receiving fees/checks from the nonprofit (because a common scheme involves creating a fictitious vendor).

• A policy to keep all cash in a locked drawer and to deposit cash and checks in the bank, soon after they are received.

• A policy to conduct a background check of employees who handle money, prior to hire and periodically throughout employment.

Hoovler’s announcement went on to provide additional pointers to consider, such as determining who is authorized to sign checks, creating a flowchart to show how money moves through the organization and pinpoint weaknesses, be consistent with documentation and invoicing, conduct surprise internal audits, designate a second person outside the bookkeeper to view bank statements, and define who is responsible for your organization’s various functions.

“The operations of nonprofits are too important and the efforts of those who run them too significant to suffer financial losses that can be prevented,” said Hoovler. “While my office will continue to investigate, prosecute and hold responsible those who enrich themselves at the expense of a nonprofit, these entities are well served to implement and enforce rigorous controls to prevent the crimes in the first place. I urge the board members of every nonprofit to remain diligent and not hesitate to report any malfeasance they uncover to law enforcement.”