Episode Transcript
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All right. On this week's episode, I 501CYou the podcast for nonprofit more members.
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And I want to talk a little bit about what boards can do to help prevent
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or maybe mitigate fraud within the nonprofit organization.
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You know, every now and then we hear about a nonprofit that money was embezzled from.
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Something was happening. And I often question
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asked the question, where was the board when all of this was going on?
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There was one just even a couple months ago, $100 million gone.
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You're like, oh, good lord, that doesn't happen overnight.
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So there's something systemic there. So as a board member, what can we do to ensure.
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Well, you can't always ensure but to limit the exposure, the
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the opportunity for fraud within an organization.
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And so with the help of my good buddy ChatGPT, read help me identify
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the ten things that we would have said otherwise if asked the question.
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And actually, it really makes it nice and concise.
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So just let everybody know. I'm usually, I out there trying to be trendy and trying to figure it out.
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But anyway, it's actually came up with some very good answers
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and it makes a lot of sense. So hey, I want to jump in real quick.
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Somebody asked me other day, what does the quarterly company do?
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Well, we do three things for nonprofits.
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One, we facilitate meetings. Yes, like board retreats
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where we discuss governance and strategy with all the members of the board.
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Number two advise CEOs and help them as they make decisions
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and implement actions to drive their mission. And then finally, we produce podcasts such as this one, but also
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for a number of nonprofits to help you get the word out, get your message out.
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So if you're interested in any of these services, please feel free to reach out to [email protected].
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Now back to the podcast. Number one.
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First and foremost, you got to establish a strong ethical culture.
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And of course that starts at the top including the board, but certainly
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the CEO. Do you have a strong ethics in place with honesty and transparency?
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Are people open? Do they communicate or they are limited silos.
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So as a board member, we need to ask about that from a cultural perspective.
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Observe, listen and make sure we lead by example
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even at the boardroom that we are open and transparent and Austin candid and direct with each other.
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Number two, and this makes a lot of sense.
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Implement clear policies and procedures.
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Boy, so many organizations don't have clear
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policies and procedures because, well, because we hate writing them
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and we hate confining ourselves to those. But boy, they're they're really important.
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and we include things like that conflict of interest procurement
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policies, especially procurement, depending on the size of the organization,
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clear policies and procedures in place so that people know what to follow
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and they know when somebody is not following them,
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which could lead to an unfortunate situations.
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Number three, segregation of duties,
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which is a nice continuation of the previous one.
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To separate those duties, any account knows
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we want to have separation of duties. The person who's writing the checks
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is not the person who's reconciling the bank account.
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For example, more people that are involved in things, less likely
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for all of them to be in cahoots and commit fraud does happen,
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but it limits that number for regular financial oversight and reporting.
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Of course, as a board member, you should be getting the financials.
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There should be audits by, independent auditors.
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The internal controls should be reviewed.
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And that's something that the board can do to ask to see those policies, those
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internal control policies and review the financials, ask questions.
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That's all right. number five,
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board oversight and involvement.
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You want to have an actively and engaged board, particularly, as I just
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mentioned, the financial statements, but in budgets, in reports,
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ask questions, seek clarification in a board meeting.
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Feel free to play them and ask those questions
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just to make sure the answers make sense and add up.
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You want to be inquisitive because over time
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you if there's something going on, you'll start to get a feeling or
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things just won't. The dots won't connect. So be sure to ask a lot of questions.
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Here we are at six. Depending on the size of your organization, you're
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probably going to have an independent audit committee. You should. And this is separate from the finance committee.
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So this is the audit committee. We're really the members should understand audit and have some financial expertise.
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This is the group that's going to examine the internal controls
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and work with the outside auditors.
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Really, really important.
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Seven make sure you have whistle policy blower policies in place.
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This gives any employee the opportunity if they see something
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that's not right to report, there's no retribution.
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If that's the case and it's, you know, typically a phone number
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that's established that they call or some type of anonymity,
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of course you'd want to investigate anything and use some common sense, but
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make sure there is an outlet for
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somebody who may be observing something.
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Number eight, of course, regular training and education
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of board members, volunteers of everybody, just about what is fraud prevention?
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What is ethical conduct. Now, look, we should all know that I understand that.
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But in those organizations, I've experienced that type of fraud.
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I guess they weren't doing this type of thing.
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And so we should lead by example at the board level and at the CEO of
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just be proactive in having this type of training.
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Number nine, of course, you want to always continually
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monitor and evaluate, look at your internal controls.
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Do they need to be changed and they need to be to evolve?
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What risks are there as you grow in size?
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As you get an additional grant, maybe a federal grant, or also when you get a large sum of money,
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do you have the policies and procedures and practices in place to manage
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that kind of money and a report on it in me?
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hold it to account. You know, everybody thinks, boy, it's a blessing when you get this big human mungus grant.
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But I can tell you, it takes a lot of work to ensure that those funds are used
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to how they're supposed to be used, in that you have those controls in place.
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It doesn't happen just overnight.
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And then I'm to go on number ten. I'm gonna go back to really what we talked about at number one.
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As board members, we should lead by example
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in terms of ethical behavior, financial stewardship.
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Ask those questions, follow policies,
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set the tone for integrity.
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And when you're working at the board level and then throughout
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the organization, that really does begin to make a difference in.
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That leads me to one thing. Maybe number 11 is be visible board members should be be it should be visible.
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You should go to events. You should ask questions of staff when you're at events.
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You know, some of it's just friendly conversation,
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but you never know what you're going to uncover and just be invisible.
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And just kind of that that old adage, you can expect what you inspect.
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And if you're not inspecting something, well, you don't know what to expect
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type of thing. So as a board member,
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why you can't totally eliminate the opportunity
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or the risk of fraud, you certainly can be proactive
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in creating an environment where fraud is less likely to happen,
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and you've got the controls in place to observe it, understand it
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when it does happen. So there you go.
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Ten things you can do as a board member to help helpfully mitigate
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the opportunity for fraud in a nonprofit organization.
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And I'm sure I'm going to talk more on this later
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as this continues to, unfortunately, rears its ugly head.
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So this is Michael Corley, this week's episode of I 501C You and I will.
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