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Nonprofits need safeguards

They help minimize risk of loss to fraud

Nonprofit organizations can fall victim to fraud if necessary measures are not taken.

A recent example of this kind of loss reportedly occurred in Butler County when a former treasurer of the Winfield Township Volunteer Fire Department was arrested after she allegedly siphoned nearly $68,000 from the organization to pay for bills at home, state police said.

Jodie Lynn Undercuffler, 37, of Jefferson Township, who was arrested Monday, told investigators that she took the money because “it was so easy to get away with,” according to court documents.

She was arraigned on felony charges of forgery, theft by unlawful taking, theft by deception and access device fraud and a misdemeanor charge of tampering with records.

While there are no processes to completely eliminate the potential of wrongdoing, financial experts said there are certain actions that nonprofits can take to help prevent internal crime.

“One thing small entities can do is segregate the duties so that one individual does not have control of the financing,” said Tim Morgus, vice president of Maher Duessel Certified Public Accountants in Butler.

But Mike Robb, executive director of the Alliance for Nonprofit Resources in Butler, said segregation can sometimes be a challenge for small nonprofits with limited staff.

“One challenge smaller nonprofits face is having enough staff to segregate duties,” Robb said. “But you have to segregate duties so that not every transaction goes through one individual.”

The alliance handles accounting management for about 10 nonprofits in Butler and Armstrong counties.

Robb said some nonprofits see the need to break up duties as a hassle, but said it is needed.

“It is an inconvenience,” he said. “But with responsibility should come a little inconvenience.”

Robb said multiple people should be involved with overseeing money going in and out of any organization.

“You don’t want the same person who opens the mail being the one who deposits the check,” he said.

Morgus said while cash received as donations can pose a problem for potential fraud, check manipulation also is a threat.

“A lot of organizations focus on cash, but there is a lot of fraud through check manipulation,” Morgus said. “Entities should make sure the person writing the check is not the same person receiving the bank statements.”

Robb said he recommends checks have a threshold that requires two signatures.

He said having a board member and a financial administrator sign checks is a good solution.

“You don’t need to have all accounting people,” Robb said.

But Morgus said while having two signatures helps, it does not automatically prevent fraud.

“People forge signatures,” he said. “And banks don’t make sure the signature is proper, so organizations can’t rely on bank to keep an eye out for that.”

Morgus said timely financial reporting to a nonprofit’s board of directors is key to preventing fraud. Also board members need to closely review those reports.

“Small boards in particular have to be more actively involved,” he said.

Robb said it is important for a nonprofit’s board of directors to keep a watchful eye on the finances.

“We provide a financial report to the board,” he said of his nonprofit. “They see that on a monthly basis.”

He said the reports should include check register of all incoming and outgoing payments.

All expenses should have an invoice attached.

“You wouldn’t just pay a utility company without a bill,” he said.

Kierston Hobaugh, executive director of the United Way of Butler County, said her organization’s board is proactive in overseeing the finances.

“Our board members receive a detailed financial report monthly,” she said. “It includes a list of all payables.”

Hobaugh said the board is vital in overseeing the organization’s funding.

“They definitely have the report right at their fingertips,” she said.

Hobaugh said the United Way also requires two signatures on checks, typically those of the executive director and a board member.

“We have a number of checks and balances in place,” she said.

Robb said board members should not be afraid to question any expense.

“They need to validate the expenses,” Robb said. “It’s the responsibility of board members to do that.”

Regular audits should be conducted and reviewed by the board as well.

Robb said the scrutiny is critical because any organization is susceptible to theft.

“No matter what processes are in place, if someone wants to steal money, they’ll steal money,” he said.

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