Fiscal Oversight: The Importance of Annual Audits

This morning when I opened my email, I found two articles in Philanthropy Today about nonprofit employees being found guilty of embezzling hundreds of thousands of dollars from their organizations.  I have read dozens of similar stories over the past few months, and every time I do, I cringe and shake my head. If you Google “nonprofit embezzlement news,” you will find page after page of articles from around the country of this happening.  Every story about a trusted employee, whether it is a book keeper, an administrative assistant, a Chief Financial Officer, or an Executive Director, indicates the theft takes place over an extensive period of time, and every time they are eventually caught, it gives a black eye to the nonprofit sector.  It breaks my heart.

Each time, the culprit has their reason to skim from the charity.  Sometimes, they are going through a life changing event like a divorce or an illness in the family, and they need the money to pay their bills.  Sometimes, the individual has an addiction to drugs, alcohol, or gambling, they are trying to feed.  Other times, they allow greed and a desire for the finer things in life thinking they are entitled to a big house, a fancy car, or flashy wardrobe.  Regardless of their reasons, once they start stealing, they keep stealing until they are eventually caught.

If the Boards of these organizations did a better job of providing the oversight as they are supposed to be doing, this should not happen, but to be honest, few Board members give the kind of attention to the financial information they get at meetings.  Most are not accountants and are not trained to understand spreadsheets, nor do they go over receipts for money that is spent.  Embezzlers are good at covering their tracks and hiding their crimes from the untrained eye.

This is why annual audits by independent accounting firm are so important for the fiscal oversight of your organization.  Hundreds of thousands or millions of dollars don’t disappear from the organizations' accounts over a matter of weeks or months, but over years, and if you have your books audited annually, the theft will be uncovered before it reaches that amount.  Auditors will go through expenses and investigate questionable spending by an organization. 

Organizations owe it to their donors and their clients to do a better job paying attention to the money they are given to fulfill their mission.  It increases transparency and builds trust.  Admittedly, audits can be an expense that organizations may not want, but it is far better than waking up one day with your organization in the news with a story about missing funds from your charity.