By Mark Judson

A recent news story where a man was charged with stealing large sums of money from a local non-profit over the past seven years has been a hot topic of our conversation for those of us in the nonprofit sector.

Common questions that come up include why didn’t the nonprofit detect the problem sooner? Did it have a finance committee? Were their independent audits? How does this impact the organization and its mission? What will the board do now?

None of the questions and comments that I’ve been getting are concerned with the alleged theft itself.

After all theft happens all the time. No organization is immune from defalcation, fraud, and other various wrong doings. The nonprofit world is comprised of humans. We are all flawed in some way or another. Mistakes, bad choices, and even alleged criminal activity do come up from time to time.

By the way, the purpose of this column is not to beat up the nonprofit in the news story. At press time for this column, the nonprofit in the news story has not been identified. I’m sure the organization is comprised of good people who mean well. I’m guessing that the entire organization feels sucker punched. I know I would.

However, for anyone connected to a nonprofit (which should be everyone) the news story does raise important questions. Many nonprofit folk are asking ourselves what would we do if we were in the same position? We’re wondering what went wrong? Is my organization in danger of a similar risk? Is my organization doing what it is supposed to do to reduce these types of risks? How would I react if this happened to my nonprofit?

Board oversight is the best way to mitigate these types of risks. Every nonprofit is governed by a board of directors. All directors have a fiduciary duty to make sure that the organization’s spending and allocation of resources are aligned with the organization’s mission. Most boards have finance committees that are usually comprised of financial professionals like accountants, bookkeepers, financial advisors, bankers, and business owners. The finance committee takes the lead on proposing a budget, tracking the budget, and occasionally takes deep dives into the books of the organization. The full board generally reviews financial statements and revenue and expense reports at every board meeting. Effective board members ask good questions, especially when something seems different or out of line.

Also, some business ownership policies have coverage opportunities for employee and or board member theft. Usually, these coverages are low-cost riders to a main policy and are generally affordable.

I hope that the nonprofit in the news story will pick itself up, shake this off, regroup, reassess, move on, and bounce back strong. I hope that all other nonprofits will be inspired to look at oversight practices and make sure that policies and procedures are in place to mitigate risks. Hard learned lessons are painful, but they are great teachers.

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Mark M. Judson is executive director of the Southwest Louisiana Law Center, Inc. Contact him at 436-3308, or
mjudson@swla-law-center.com.