Idaho American Legion embezzlement allegations should be a wake-up call to nonprofits | Opinion
Revelations that the Idaho State Police is investigating the former commander of the Idaho American Legion on suspicion of embezzling funds should serve as a wake-up call to other Idaho nonprofits.
As Idaho Statesman reporter Kevin Fixler has been reporting, Charles “Abe” Abrahamson is suspected by fellow senior leadership of embezzling at least $750,000 of its funds.
Without the proper checks and balances, a nonprofit can be susceptible to fraud and embezzlement.
But there are things nonprofits can and should do to make sure they don’t have a similar financial indiscretion.
“It’s the same kind of principles as personal finances with kids spending money or whatever,” Kevin Bailey, CEO of the Idaho Nonprofit Center, told me in a video interview. “It’s ask questions, and trust but verify.”
Bailey suggested nonprofits employ “segregation of duties,” so that no one person is in control of a nonprofit’s finances and assets.
Nonprofit checks and balances
It’s important that nonprofits set up checks and balances when it comes to four main areas:
- Authorization and approval: Who can buy what? Make sure no one person has authority to make purchases without authorization.
- Holding assets: Whose name is on the bank account? Make sure at least a couple of people have access to check the accounts.
- Recording of transactions: Who’s inputting financial data? Having a contracted bookkeeper is a good practice, someone who is an independent third party who can catch financial misdeeds.
- Reconciliation of assets: The board of directors should be the backstop by checking that the nonprofit’s withdrawals, deposits and account balances match up.
“The board’s job is not to be blind trustee and friend to the executive,” Bailey said. “It’s to be a strategic thought partner but also to carry out the main board governance duties.”
Bailey also recommends that nonprofits conduct an annual audit or at least a financial review.
A full audit can be expensive, but nonprofits can hire an accountant for less money to do a financial review, which looks over the books and analyzes the checks and balances that are supposed to prevent fraud or embezzlement.
“It’s worth every penny,” Bailey said. “People always ask us, ‘How much audit should we get?’ And our answer is always, ‘As much as you can afford.’ Get as much audit done as your organization can manage because it builds up the trust (with) the public.”
Warning signs
So what are some of the warning signs of potential financial impropriety?
- Lack of reporting: If a board isn’t getting basic financial information on a regular basis, that could be a red flag.
- Basic questions can’t be answered: “I see there was a transfer out of this bank account into another fund, but I don’t see that money entering the other fund? Where’s that money?” If your director or treasurer can’t answer basic questions like that, there might be a problem.
- Unilateral decision making: If one person can decide to make a purchase or transfer money without board or finance committee approval, that could be problematic.
- Limited access to bank accounts: Is there just one person with access to bank accounts? Having access to bank statements — not just an Excel spreadsheet provided by the director or treasurer — is important to ensure someone isn’t cooking the books.
As a board member, Bailey said, it’s important to say something if you see something or if something doesn’t look right or make sense.
“Don’t be afraid of the audits and financial reviews,” Bailey said. “Turning over the books to an independent financial agency that can say, ‘Hey, you got some work to do on these areas.’”
He said stories like the Idaho American Legion cause “collateral damage” by eroding the trust that the public has in charities and nonprofits.
“On the whole, the organizations that we work with, the vast, vast majority, have strong board checks and balances in place,” Bailey said. “It’s rare for us to see audits that come back for the organizations that are going through that and don’t have clean audits.”
Idaho’s nonprofit sector
The Idaho nonprofit sector is no small potatoes.
Idaho has 2,525 financially active nonprofits that collectively hold $9.45 billion in assets and $8.38 billion in collective revenues, according to the Idaho Nonprofit Center’s most recent State of the Sector report from 2022.
Idaho’s nonprofit sector is the fifth-largest private sector workforce in the state, employing more than 67,000 people, or 12% of Idaho’s private sector workforce.
About a fifth of Idaho’s nonprofits, 475, have annual revenues of less than $50,000.
What you can do
The Idaho Nonprofit Center puts on training sessions and provides resources for nonprofit organizations whether they’re members or not.
The center puts on a Finance 101 class that goes through the checks and balances that should be in place to protect the organization’s finances. It costs $75 for members and $100 for non-members.
In addition, the center has a free online Finance 101 learning module that it makes available on its website.
The center also puts on Board Member Boot Camp, consisting of three one-hour online sessions, that teaches attendees the roles and responsibilities of nonprofit board members and the executive director. The boot camp is a pay-what-you-can, with prices ranging from $10-$60.
I’ve always felt that nonprofits, especially small community organizations, are ripe for fraud. They’re usually loosely run by a group of volunteers, usually friends or fellow parents or neighbors who by and large trust one another.
Bailey said it’s well worth the time and effort to make sure, no matter what size your organization, that your financials are in order.
“Trust is the key currency for our sector,” Bailey said. “There’s nothing more important than safeguarding that trust and safeguarding the reputation that an individual nonprofit has.”
