What do you do if you discover financial misconduct in your nonprofit leadership role?

The first actions you should take in your nonprofit leadership role are critical if you find financial malfeasance. The first thing you should do is to gather any evidence that pertains to the financial malfeasance. This entails gathering any pertinent documentation, bank records, emails, or other data that bolsters your finding of the wrongdoing. To prevent manipulation or destruction, make sure that this evidence is handled securely, confidentially, and with care. By gathering information as soon as possible, you may create a factual foundation for the wrongdoing, which is necessary for carrying out a comprehensive investigation and choosing the best line of action to successfully resolve the problem.

It’s not advisable to gather evidential matter unless you are trained in handling evidence, maintaining chain of custody documentation, secure the evidence, etc. so you don’t taint the case. Remember, even if you’ve suffered a loss and the local prosecutor chooses not to take the case, you may need sound custody of the evidence in case your employee was covered by bond insurance and the insurer wants to press the matter with the prosecutors…..they often have more leverage than smaller companies within the legal system.

When financial red flags appear, swift and composed action is key. ?? Gather evidence, but resist jumping to conclusions. ?? Could there be a logical explanation? ?? If misconduct seems likely, prepare for next steps, but ensure your initial assessment is meticulous and precise. ??

In your capacity as a nonprofit leader, report any financial misbehaviour you come across to the appropriate authorities, such as the board of directors, legal counsel, or regulatory bodies. To ascertain the degree of the misbehaviour, pinpoint the guilty persons, and evaluate the organization's financial integrity, undertake a thorough inquiry.

Might be better to take what you have directly to the prosecutor and work with them to develop a case, with your legal counsel present and pre briefed.

I think that there should have been internal policies and procedures in place concerning financial management and misconduct. It is important to follow those policies for transparency and justice. In the case where the misconduct requires additional steps outside of the policies, then it would be advisable to seek sound legal advice.

Internal policies should be prescriptive in that they define roles and responsibilities for your area, finance, Human Resources, legal, the board, etc. Sound investigative techniques will dictate HOW the investigation is conducted. If one is not trained in investigative measures, then outside help is needed from law enforcement trained in such matters or a CFE.

When dealing with financial misconduct, clear and careful communication is key. 1. Identify stakeholders: Determine who needs to be informed, such as board members, staff, donors, or the public. 2. Craft a factual message: Stick to the facts, avoiding speculation or accusations. Be respectful of all parties involved. 3. Choose the right timing: Communicate promptly, but ensure you have accurate information before making any announcements. 4. Maintain transparency: Be open and honest about the situation, respect confidentiality and legal considerations. 5. Provide updates: Keep stakeholders informed about any new updates. Communication during such times should aim to preserve trust, minimise panic, and uphold the organisation's integrity.

Professional management of financial wrongdoing is essential to ensure legal compliance, manage reputational damage, preserve transparency, and preserve credibility. It preserves the company's moral character and stakeholder trust, exhibits responsibility and ethical behaviour, and lessens the possibility of legal ramifications for the company and its executives. Effective communication is crucial to preserving confidence and averting legal consequences.

As stated previously, Policy should dictate roles and communication protocols to protect you and the organization from liability in the event that the investigation determines no misconduct occurred.

In order to rebuild confidence and integrity, take prompt action to address the wrongdoing. This action should include putting internal controls in place, implementing corrective measures, and making sure that communications with stakeholders are transparent.

The Internal Audit function or a Certified Internal Auditor should be engaged to aid in evaluating evidence and assess controls During the investigation to mitigate any further or future risks. Mitigation during the event prevents entrapment liability, and after prevents copy cat events.

Love this perspective! There are many who discount the importance of internal controls in the nonprofit arena. Segregation of duties are no less important to organizations centered around a “mission” than for profit entities. Ethical leadership, including the board, and management are integral to an organization. Risk is all around us. I subscribe to prevention over detection. Better to prevent the milk from spilling than to sop it up once spilled!

When it comes to fraud in nonprofits, an ounce of prevention is worth a pound of cure. Probably even more. The annual external audit does little to identify or prevent fraud (despite myths to the contrary). Instead, engage a professional to help you design, implement, and follow up on things like: * A whistleblower protection policy * An internal audit committee * Appropriate internal controls, including: * Criminal background checks before hiring anyone who will touch money * The bookkeeper shouldn't have bank access * Someone else, not the regular bookkeeper, should pay bills and run payroll at least 2x yearly Bottom line: reduce the opportunity for fraud while increasing the likelihood that it will get detected early.

The last thing you want is to find yourself in this position with no plan for what to do. Advance planning for situations like this are critical. Operating policies and procedures need to be created and maintained so that, if and heaven forbid when, the worst happens you have a plan of action. Every organization needs plans and procedures to address this and other potential problems. Make sure those plans include crisis protocols, and most especially a crisis communications plan! Consider bringing a crisis communications expert to the table as soon as possible to make sure you don’t have any missteps that could tie your hands or put you in a poor position with your donors and community.