Seven instances of publicly reported fraud have been committed by nonprofit executive directors within Waco charities the past eight years. This is a shocking statistic but serves as a reminder that fraud happens, even in our community.
Although rare, fraud is devastating to a nonprofit’s mission and can lead to mistrust and a loss of valuable services in the community. While some fraud is committed blatantly by people with ill intent, most fraud is committed by people who are well-intended but have lapses in judgment. Nonprofit board members must understand it is their job to be vigilant to this potential risk — no matter how much they admire and trust an executive director. It is negligent to assume “it could never happen here.”
As the executive director of Waco Foundation, I, along with our board of trustees, believe strongly in transparency and fraud prevention and we take several steps to help protect the foundation. For instance, despite the large size of Waco Foundation’s managed assets and budget, our board treasurer still maintains a tight oversight of executive expenses because this is an area where any nonprofit or for-profit organization is highly vulnerable. Our board chair always receives a copy of bank statements directly from the bank and is encouraged to ask questions about any unfamiliar expense.
Our entire board has access to all of our financial information and statements at any time. We also ensure all donations to the foundation go through multiple hands so there is a healthy checks and balances process. All of these activities are designed to ensure our board and staff are conditioned to this work, so that no matter who is in the executive director position in the future, transparency is part of our organizational culture.
While Waco Foundation has put these steps in place to help protect the financial health and stability of our organization, the foundation this year will undergo planning specifically to prevent fraud — not because fraud is suspected but at my behest in an effort to ensure the organization is always protected.
Waco Foundation invites the nonprofit community to join us in examining the nature of fraud and how boards can prevent it. I encourage all nonprofit board members to consider the steps their organizations already take to prevent fraud and what additional processes they can put in place for added protection.
To aid this effort, Waco Foundation is hosting national fraud prevention expert David Cotton. Mr. Cotton has extensive experience in fraud prevention and has served on the Advisory Council on Government Auditing Standards, the Institute of Internal Auditors Anti-Fraud Programs and Controls Task Force and the AICPA Anti-Fraud Task Force. He co-authored “Managing the Business Risk of Fraud: A Practical Guide” and “Management Override: The Achilles Heel of Fraud Prevention.”
Waco Foundation strives to maximize the value of outside consultants, so we are engaging Mr. Cotton not only to work with Waco Foundation’s audit committee but to provide a community workshop about fraud prevention. Co-hosted by the Waco-McLennan County Bar Association, Central Texas Chapter of the Texas Society of Certified Public Accountants and Waco Foundation, this sold-out workshop will allow other nonprofit board members, staff and community professionals to benefit from Mr. Cotton’s invaluable experience.
As the community foundation for McLennan County, Waco Foundation is committed to strengthening nonprofits, and that includes providing support for fraud prevention. It is important for board members to remember traditional audits are not designed to detect fraud, and although fraud detection audits can be costly, they are occasionally necessary to verify fraud or ensure fraud is not taking place. As nonprofit board members begin thinking about this important topic and work to implement the proper steps to protect our valuable community organizations, Waco Foundation is here to help.
We understand every organization is unique and thus requires different strategies, policies and procedures that make sense for each individual nonprofit. The foundation is here to assist our local organizations by connecting them with the proper tools and resources to help protect them from the threat of fraud.
Fraud is not something we want to think about. We certainly do not want to imagine it could happen in our community, to a charity we know and trust. But the truth is, it can happen anywhere. However, with proper planning, fraud is something we can work to prevent. Waco Foundation is stepping up to make sure our organization is protected for future generations. We hope other nonprofits will commit to the same.
Ashley Allison is executive director of Waco Foundation, whose mission is to promote solutions to community challenges, strengthen local nonprofits, engage philanthropists and manage charitable assets to improve quality of life in McLennan County.