Money & Business

It Takes a Village: Preventing Fraud at Small-Staff Associations

By / Jun 1, 2017 (iStock/Thinkstock)

Some ways that small-staff associations can protect their financial assets and deter fraud by gathering support outside of the finance department. The bottom line: Don’t go it alone.

Segregation of Duties (SOD) is one of the fundamental elements of financial risk management.

The idea is that financial responsibilities are shared among people and departments to ensure that an association’s assets are safeguarded and that fraud is deterred—and hopefully prevented.

And SOD is an important concept to consider because we know that despite associations’ altruistic missions and goals, they’re not immune to fraud.

In its 2016 Report to the Nations on Occupational Fraud and Abuse, the Association of Certified Fraud Examiners found that the typical organization, no matter its size, loses a median of $150,000 from a single case of occupational fraud. However, a loss of that amount probably hurts a smaller organization a lot more.

Consider small-staff associations. While SOD is necessary, how are they supposed to implement it if their finance department is a one-person team? Hilda Polanco, CEO of Fiscal Management Associates, which provides financial management and consulting services to nonprofits, offer some tips for getting it done.

Number one is to realize that the responsibility can’t fall all on one person. “It takes a village,” she said. Here are some people who small-staff associations can enlist to spread the financial responsibilities around.

Executive director. Payroll is one of the largest expenses an association has. As such, “payroll in a small organization should always be signed off by the executive director,” Polanco said. And associations should consider partnering with an outside payroll-processing company, such as ADP or Paychex, to set up an “exception report.” This report will flag “where there’s a change in either the amount or the number of people that are being paid,” Polanco said. For instance, an employee’s raise or bonus or the addition of a new employee would show up in an exception report, and it’s an easy way for a busy ED to quickly review any irregularities.

The executive director should also carve out time to check the association’s bank accounts. “I have one ED, who every Friday, just scans the online banking, just like you or I might scan our online bank accounts,” Polanco said. “And, unfortunately for her, she found a $5,000 check that wasn’t supposed to have happened.”

Non-Finance staffers. For accounts receivable, Polanco recommends getting the receptionist—or someone else in the association who has nothing to do with accounting—to be responsible for scanning checks received into the association’s remote-banking portal. This should be done ASAP, Polanco said, to avoid having checks laying around the office. “The more the checks linger inside the office, the higher risk there is,” she said.

And Polanco highly discourages any staff from taking credit card information over the phone. Do it online, she suggested. There’s a whole lot of people in and out of an office, and you don’t want credit card information to get into the wrong hands. “Can you imagine if there’s an identity theft and it’s tied back to a payment that was made to the association?” she asked.

Board treasurer. When it comes to accounts payable, “the person that is charged with making payments should not be an authorized signatory on the account [and should also] not be the only one that sees the banking information that comes back,” Polanco said. She recommended breaking up the responsibilities by getting the board treasurer to review the association’s bank statements to ensure nothing is amiss.

What are some ways your small-staff association handles SOD? Please leave your comments below.

Emily Bratcher

Emily Bratcher is a Contributing Editor for Associations Now. More »

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