From Better Boards

Avoiding employee theft. How vulnerable is your nonprofit?

Oh no! We've been robbed!

Another news release about significant employee theft at a nonprofit rolled across my desk. When a quick internet search on embezzlement at nonprofits turned up a myriad of cases, I thought it would be helpful to talk to an expert in the field.

So I turned to Michael Santocki, Esq, Managing Director of the Management and Professional Risk Group at Crystal & Company, described as a “ leading strategic risk and insurance advisor.” Michael told me they were known as one of the top  insurance brokers for nonprofits in the US.

An attorney by trade, Michael has been in the insurance business for 20 years. We had a long discussion about many aspects of risk management at nonprofits. I’ll share some of his insights on other matters in a future post.

GG: What can you tell me about employee theft at nonprofits?

MS: Employee theft is one of the most common areas of risk for nonprofits. Unfortunately, nonprofits don’t always have the level of controls that many private companies have.

According to a 2014 report by the Association of Certified Fraud Examiners*, Nonprofits across the US lose approximately 5% of annual revenues to fraud.

GG: Could you tell me some of the ways this happens.

MS: Unfortunately, there are lots of ways this can happen.  Bookkeepers often create dummy invoices, ghost vendors or kickback schemes.

Take kickback schemes. In this case, an employee at the nonprofit works out a deal with the vendor. Let’s say the employee orders supplies, say 100 of some item. The vendor only ships 80 of that item and then kickbacks part of its profit to the employee on the 20 items that were not shipped. While the amount might be small, this type of theft adds up over time if it’s never caught.

Other types of employee theft are very innovative. For example, the office is being renovated so the employee slips in their own bills for renovation supplies for their own property.  An employee can prepare dummy invoices, where the check is then written to themselves and then fudged later. This happened at Roman Catholic Diocese in NYC where a long-time, trusted employee in the accounting department, who was obsessed with purchasing expensive Madame Alexander dolls, was arrested in 2012 for embezzling more than $1 million over seven years.

GG: So what can an organization do to protect itself?

M.S. While criminal background checks are important, unfortunately, about 87%* of fraudsters have never been charged with a prior offense and that holds for both for profit and nonprofit organizations.

Nonprofit organizations need to be vigilant and take preventative measures to minimize the risk of theft or catch it early.

It is pretty hard to spot an executive director engaged in this type of activity. Never let one person be in charge of everything.

For example, make sure that you segregate duties for the folks paying bills and those handling money, have surprise audits, make sure that you have counter signatures on checks, and conduct fraud training for your employees.

Often the way many organizations catch the thief is to make the employee take vacation and then someone takes look at their work.

Know your employees. Keep an eye out when something seems out of line… be astute about suspected changes. Have a confidential hotline for employees to report suspicious activity within your organization.

GG: What if a theft happens anyway?

M.S. The good news is that an organization can transfer the risk by buying an insurance policy. For example, a crime insurance policy covers theft such as forgeries, alteration, counterfeit, burglary or robbery. Most mid-sized nonprofits could generally buy a policy for around $5000 for comprehensive coverage. A tiny organization could buy one for a few hundred dollars.

GG: Thank you Michael for opening my eyes to this uncomfortable world of employee theft. But both boards and executive directors need to be aware that not only can this happen, that it does with some regularity, even in our nonprofit sector. Be prepared.

*2014  Association of Certified Fraud Examiners: http://www.acfe.com/rttn/docs/2014-report-to-nations.pdf

Gayle will share other advice she received from Michael in a later post.

Governance is Governance

Ken DaytonI was cleaning old files a few days ago when I stumbled across the beloved “Governance is Governance” by Kenneth N. Dayton.

If you are too young to know this monograph, it’s the text of a keynote address to a professional forum hosted by Independent Sector’s Effective Leadership and Management Program given in May 1985 and published in 1987.

I was delighted to find it and read it again. As someone who works with many nonprofit boards and executive directors, the simplicity and clarity of the advice continues to ring true.

Here’s Dayton’s Function of the Board of Directors:
“As representatives of the public, be the primary force pressing the institution to the realization of its opportunities for service and the fulfillment of its obligations to all its constituents.”

And his Function of the President and CEO (that is, chief staff officer/executive director)

“1. Serve as the Chief Executive Officer of the institution, reporting to the board of directors, accepting responsibility for the success or failure of the enterprise. (emphasis added)

“2. With the Chair of the Board, enable the Board of Trustees to fulfill its governance function, and facilitate the optimum interaction between management and the Board.

“3. Give direction to the formulation [of] and leadership to the achievement of the institution’s philosophy, mission, and strategy, and to its annual objectives and goals.”

Wow.

You can find the full monograph online at the url below.

Reading and discussing this would make for the great start of a board retreat.

 

 

Your nonprofit has problems? Watch Mozart in the Jungle

Jon and I just finished binge watching the first two seasons of Mozart in the Jungle on Amazon. violin-1085606_640

The cast includes Bernadette Peters, Malcolm McDowell and Gael Garcia Bernal who just won a Golden Globe for best TV actor in a comedy or musical.

It’s rare that any TV show brings us into the wacky and soul-fulfilling world in which we spend our days and many nights. This charming romantic comedy touches so many themes many of us have confronted.

Spoiler Alert — sharing some content

What’s not to love:

  • Crazy charismatic but unpredictable new artistic director
  • New artistic director succeeds long time and beloved director
  • Board infighting
  • An Interim Managing Director who is also the Board Chair
  • Fundraising, fundraising, fundraising challenges
  • Nurturing wealthy donors
  • Traditional classical arts program grappling with cultural changes
  • Staff-management relations (and relationships! not advised)
  • Vision/mission/ values conflicts
  • And many more

You’ve heard me preach that you need to create transforming emotional experiences for your donors and your board members. Without getting into the details, the fundraising scene in Episode 4, Season 1 is priceless.

It’s worth dissecting that one scene with your fundraising staff and board volunteers. For what works, and what doesn’t.

While I’m not recommending that your nonprofit conduct itself as the NY Symphony does in this show, I think you’ll find yourself relating to some of the challenges they face.

Are you already a fan? Why?

If not, let me know what you think.

P.S. My musical friends tell me not to get all crazy about whether the musicians are playing their instruments correctly. And for those who abstain from watching  shows with some nudity and drug use, not for you.

Wear your allegiance on your name tag

I’m on the board of WaterFire Providence.

At our meeting last week, I got a good chuckle out of the name tag fellow board member Peter Van Erp was wearing.

An architect, it wasn’t surprising that Peter designed his own custom tag.

Knowing him as I do, I guessed immediately Peter’s board commitments — WaterFire Providence and Habitat for Humanity of Greater Providence are on the ends. Can you guess the organization in the middle?

I can’t begin to count how many name tags I end up disposing of and feeling terribly guilty about. I try to give them back when the organization wants them. I even own one of those long permanent pin-on name tags from a peace trip I went on to the Soviet Union back in 1981 — I think I know where it is but I always forget to bring it with me.

I thought Peter’s name tag was a commendable example of efficient reuse.

He said I could share it with you.

Do you think maybe I’ve been in this business too long… getting excited or irritable about name tags? This is my second post. My first Preparing name tags – a facilitator’s lament was about how crazy I get when the name on the name tag is so tiny it’s basically invisible.

Reminds me of the long conversation on a facilitator’s list serve a few years ago about what flip chart markers people used. It was one of the most engaged discussions I remember on that list.

Answer me – dammit!

How to infuriate your Executive Director

Point of collectionDon’t answer me!

Ignore my emails.

Don’t return my phone calls.

It seems there is a rash of this going on these days. In the last few weeks, this has been at the top of the frustration list among executive directors I’ve been working with.

What work gets stymied?

  • Can’t get a meeting date arranged.
  • Can’t get some input on an important decision.
  • Won’t confirm their pledge or the date they are sending it.

I hear the lament… ” I simply can’t get them to call me back.”

Doesn’t make you feel very important, does it.

How many phone calls and emails are enough to make you respond?

Having just spent hours trying to arrange three committee meetings myself, I so totally understand this frustration. And that was using a Doodle meeting set up helper. I even ended up texting.

I don’t have a strategy for this.  I do have an answer… stop dodging the question.

Of course, I understand that in some cases the Executive Director is hounding board members and they might be trying to avoid him or her.

But really, a better strategy would be to tell your executive director why you feel like he/she is hounding you. Then arrange a better way to communicate.

What do you think?

 

Stress test your strategic plan

I was moving to wrap up a strategic plan today with a client, when a board member asked this question:Lift weight

If we “stress test” this strategic plan – borrowing the idea from banking, how would recent decisions our organization made align with this plan?”

Stress testing is a simulation used to test how banks will fare against a series of scenarios. During our planning process, our committee explored future shifts. The suggestion of looking backward against recent decisions was well-received.

What followed was a robust and thoughtful Read more

Good reads on board learning

There is so much to learn on board governance that it can be overwhelming. That’s why I appreciate my colleagues across the globe who share their wisdom and help curate the vast amount of stuff flowing past us.

Today I’d like to celebrate Debra Beck, EdD and her always stimulating Laramie Board Learning Project blog. (Besides reading Debra’s writing, I’m also having the pleasure of collaborating long distance with Debra as part of a team conducting research on board chairs.)

In her blog, Debra explores board governance through the lens of adult learning. Her blog is an exploration of how boards and the people who work with them can apply adult learning theory to improving governance.

For too long, many organizations have sought to solve their board challenges by hosting another training session. I get those calls all the time… “please come tell my board what it should be doing.”

But as Debra reminds us, most adult learning doesn’t happen in a workshop. As she explains, the 70:20:10 rule for adult learning proposes that just 10% of adult learning happens in formal training sessions. Most adult learning — the 70% — comes from doing the work, with the final 20% from interactions with other people.

Why is this important? Our board members primarily learn to be board members through their on-the-job experiences, however good or bad that might have been.

If your organization is truly interested in changing its governance practices, it’s going to take much more than a workshop to make that change happen.  While the workshop can provide examples of how to do things differently, change will only come about by intentionally putting those new ideas into action over time.

To put those ideas into action, board members and executive leadership will need to embrace learning and reflection, be willing to change the way they have learned to be a board, and make choices about their leadership that reinforces the new way of being they have set as their goal.

I urge you to plunge into Debra’s writing. It will be worth the time spent.

Preparing name tags – a facilitator’s lament

20150429_081715Yes, this is a blog about preparing name tags. Name tags or badges are those simple and remarkably effective little tools that introduce us to each other at conferences or other events.

Name tags help us overcome our shyness about talking to someone we don’t know by removing the need to ask their name. Or, even if we’ve met before, avoid the embarrassment if I’ve forgotten your name. They help people new to a group navigate faster.

I depend on name tags.

I want and need to know the names of the people around the table or around the room at the retreat or meeting I’m  facilitating. Or across the dinner or lunch table at the conference or special event I’m attending.

If your team isn’t too large and our work together long enough, I’ll learn your names a short time into the meeting. Having the printed name with the face helps me learn. Even in the college classes I’ve taught, I’ve needed name tags for at least three classes for the ones with 20 students before I finally remember who you are.

Unfortunately, most of the time I’m silently cursing the person who picked the type size for the name tags.

You see, my eye sight isn’t what it used to be – Read more

Six more criteria for your board matrix

Beyond the crazy quilt of attributes and expertise you may need in your board, I’ve listed six more criteria for your board matrix. I would call these competencies; you might see them as qualities of leadership.

I find many boards hunger for these to move their governance forward. My suggestion is to keep these in mind as you recruit (and check references). Some folks arrive already equipped with some or all of these. But everyone can use training and a strong reinforcing culture to be able to practice these qualities.

1. Mission and Values Lens: The ability to consider issues with an eye toward achieving the vision or mission and upholding organizational values.

2. Strategic Thinking: The ability to deliberate and act intelligently to reach desired goals by engaging a systems perspective; testing hypotheses; learning from the past; seeking out and using data; creatively approaching opportunities, problems and solutions; understanding the organizational implications of situations and events;, seeing connections or patterns not obvious to others and generating new insights.

3. Spanning/Connecting: The ability to identify and develop relationships, to build alliances and networks and to influence the contribution of talents and resources in support of the board. In particular, candidates who have and will use their connections in the following areas to leverage resources identified as essential to our organizational success: [list areas]

4. Accountable: To accept responsibility for actions, decisions, policies. To honor obligations to our “owners”, our funders and other stakeholders, to be transparent and to accurately report, explain, & accept responsibility for consequences of actions.

5. Institutional Memory-keepers: Curious about and eager to learn the history,culture, programs, processes and procedures of the organization. Willingness to observe the bylaws and board-approved policies and procedures.

6. Learners: The desire to understand and to improve performance based on experience. A desire to set aside time for reflection, seek out data and expertise, identify knowledge gaps, learn from experience, be curious, scan the environment for new information, disseminate what has been learned, and integrate learning so it is broadly available and can be generalized to new situations.

Related articles:

Courage and discipline for board members

Who’s on your nonprofit board: Partners, passengers, prisoners, protestors?

Throw away your old board recruitment matrix

 

Courage and Discipline for Board Members

When do board members need to show courage?

When do board members need to exercise discipline?

I posed those questions to the board members, executive directors and aspiring board members who participated in my recent workshop, What to know to be the board member you hope to be.

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Gail Randall, Special Projects Officer at the Greater Worcester Community Foundation, thanking Gayle for her workshop “What to know to be the board member you hope to be” hosted by Bowditch & Dewey.

I don’t think we use these two words enough when we recruit and train board members. I think this is so important that I devoted the final chapter in my book, How to Make Your Board Dramatically More Effective, to the topic of Courage. And I talk about discipline  throughout.

Here are a few examples that workshop participants raised:

Discipline:

  • To prepare
  • To observe appropriate board/staff boundaries
  • To stop board discussions that stray into staff work or staff decisions
  • To make painful decisions
  • To keep your focus
  • To honor your values in the face of great monetary temptation

Courage:

  • To ask the tough questions
  • To ask your first question as a newbie board member
  • To be the lone voice of dissent (collegially, of course)
  • To jump into fundraising, or advocacy, or whatever you are shy about
  • To know when your CEO needs to move on
  • To take that risk that is the right one to make
  • To say no to a gift that isn’t right for your organization

I invite you to add to this list. When have you seen courage and discipline demonstrated on your board?

Other reading:

It takes courage

Strategic planning, common sense and courage