Embezzlement cases spur caution among Summit County nonprofits
February 18, 2015
Reports vary on how much money nonprofit organizations in the U.S. lose to embezzlement and fraud every year, but estimates range into the billions of dollars. The thefts themselves run the gamut between three and six or more figures, all of them criminal offenses. This trend doesn't just touch large organizations either, but rears its head even in small communities like Summit County.
Fraud seemed to dominate local news at the end of 2014, as allegations came to light regarding the Summit Association of Realtors, a 501(c)6 nonprofit organization, and a local homeowners association. Law enforcement authorities allege that Sue Frank, longtime CEO of SAR, embezzled more than $415,000 from the organization in the course of several months, while financial administrator Robert Dwight Polich was charged with embezzling around $160,000 from a Keystone-based HOA.
Last Thursday, Feb. 12, The Summit Foundation offered a free financial controls workshop, designed to offer local nonprofit organizations information on safe financial practices and fraud prevention.
Each year, the foundation works to provide up to two educational workshops for county nonprofits. This year, the financial topic was deemed most appropriate.
"One of the things that the foundation has as part of its mission and its goal is to provide leadership for nonprofits in the community, and technical assistance," said Lee Zimmerman, the foundation's former executive director who is staying on to the end of the month to help transition his replacement. "Specifically on this topic, there have been some issues of people embezzling and taking funds because of lack of internal controls."
The topic proved to be one of interest among Summit County's nonprofit organizations as 75 individuals attended the free workshop, held at the North Branch Library in Silverthorne. Those in attendance included nonprofit board members, executive directors, treasurers, bookkeepers, administrators and employees.
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The Summit Foundation recruited a team of four individuals with knowledge of finances and the responsibility of nonprofit boards of directors: Wally Ducayet, retried partner of Pricewaterhouse Coopers LLC, and treasurer of The Summit Foundation Board of Trustees; Laura Snow, CPA and owner of Swift, Snow & Associates LLC; Troy Coon, CPA and auditor at Yanari, Watson, McGaughey P.C.; and John Ebright, a retired controller for large publically held utility companies and current treasurer of the Breckenridge Outdoor Education Center board of directors.
The topics they discussed included preventative practices such as internal controls and segregation of duties, warning signs of internal fraud, the role of specific members within an organization, from board members to treasurer, and the benefits and limitations of audits.
"Documentation is the key. In my world, if it's not documented, it's not done," said Coon.
Ducayet encouraged everyone to not be afraid to ask questions if they see something in their organization's financials that they don't understand. "It's not negative," he said. "It's understanding the business."
Having internal control practices in place, such as requiring multiple signatures on checks and separating handling functions (receiving and depositing) from record-keeping functions (recording transactions and reconciling accounts) does just as much to prevent fraud from happening as it does highlight when fraud might be occurring.
"We think that people are trustworthy, but unfortunately locked doors keep honest people honest; internal controls keep honest people honest," said Swift.
She also reminded people to keep an eye out for things that don't look quite right. "People can manipulate things too easily in this day and age of electronic wonder."
"We've had a couple of major fraud cases in Summit County," said Ebright, "and I think before those hit the press and the Summit Daily, most of us thought that's something that's not going to happen in our town."
Statistics show that fraud is committed not only by low-level employees but sometimes those at the very top, such as the case with Frank, or the case several years ago with Dawna Foxx, former executive director of the Breckenridge Festival of Film, who was accused of embezzling more than $210,000 from the local nonprofit organization.
According to the 2014 "Report to the Nations," a report provided by the Association of Certified Fraud Examiners (ACFE) based on 1,483 cases of occupational fraud, nonprofits accounted for 10.8 percent of organizations affected by fraud, an increase from the 10.4 percent of 2012 and the 9.6 percent of 2010. This number is similar to the one reported in the "2013 Marquet Report on Embezzlement," a white collar fraud study by investigative company Marquet Internatinal LTD, which stated that "non-profits and religious organizations combined were third with 11.3 percent of all incidents."
AN OPPORTUNITY TO LEARN
Local nonprofits of all sizes and causes were represented among the crowd at the workshop. Some, like Domus Pacis Family Respite, are dealing with growth and want to make sure that increases are handled responsibly.
"It's really important that any not-for-profits make sure that their financials and their financial processes are up to snuff. Donors give us money and they expect us to use it in the right way," said Vince White-Peterruti, Domus Pacis board treasurer. He and his wife, Duck White-Peterruti, started the organization back in 2008, where they brought eight families dealing with cancer to Summit County for an opportunity to relax and spend time together in the mountains for free. Now, they deal with around 100 families each year, and have brought on a small staff.
The financial controls workshop was helpful, and "it reinforced a number of things we were already doing," Vince White-Peterruti said. He added that "It sparked a few ideas."
"For me, personally, it was definitely helpful," agreed Larissa O'Neal, executive director of the Breckenridge Heritage Alliance. Although the BHA's financials are already strong — presenter Ducayet used to be the board treasurer — "there's always something new to learn from a session like that," she said. "I think, overall, they just presented some really good ways to have proper checks and balances in place for any sized nonprofit, for protecting employees and protecting the organization."
Another important aspect of the workshop was its accessibility to local nonprofit organizations.
"There's a lot of educational workshops out there, but they're kind of hard to get to," said Janice Kurbjun, executive director of the Breckenridge Film Festival. They often take place in locations like Salida (where the Community Resource Center, a nonprofit organization that trains other nonprofits, has an office) and Denver. That can be hard to make time for, especially for board members who have other jobs.
"A two-hour workshop turns into a five-hour day, including travel time," she said. "So for something like this to be up here, … it enables more people from the Film Festival (to attend), and I'm sure other organizations also noticed that they were able to send more people to something like that. I think it's really critical to have accessible in the community."
"Generally, they have a cost associated with them and you generally have to travel, so having a local group doing them for the benefit of all the nonprofits in the community is really unique and really great to have," O'Neal agreed.
PREVENTING FUTURE FRAUD
"You oftentimes think that Summit County is unique, but to some degree it's not," said Zimmerman, in reference to the instances of fraud that have come to light within the community. "You hate to see those things happen and you hope that they don't and you hope that everyone is able to do that, but sometimes little things slip through, … so it never hurts to have that reminder."
With the latest and with future workshops, The Summit Foundation hopes to lend its support to local nonprofits to keep them financially strong.
"We hope to have more of this education for the nonprofits," said Jeanne Bistranin, the new executive director of The Summit Foundation, in her short speech to the gathered workshop attendees last week.
"I always appreciate any opportunities for additional educational workshops The Summit Foundation or other organizations put on," said O'Neal. "I always learn something. I always have a takeaway from sessions like that one, even if I feel like I know what I'm doing."
"I think it was great, I think they were spot on with the speakers and the topics and the issues that they were addressing. I was shocked by some of the statistics that they shared," said Vince White-Peterruti. "That just re-emphasized the importance of the topic. … Just the turnout showed that people wanted that kind of information."
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