Protect Units, Departments Against Fraud

Money belonging to your American Legion Auxiliary unit or department must be managed properly. People and lax procedures are the biggest risks for fraud. Fraud is theft. Theft is a crime. Safeguarding ALA funds requires having and following proper procedures for oversight, internal controls, and checks and balances.

Why is this important? Because nonprofit organizations, by their very nature of existing to “do good things” are too trusting and too lax about business practices. Nonprofits, therefore, have the highest rates of fraud and theft. More than 1.6 million nonprofits have experienced fraud in recent years, according to Mike Alerding of Alerding CPA Group, ALA National Headquarters’ external audit firm.

Unfortunately, several American Legion Auxiliary departments have experienced fraud resulting in the loss of millions of ALA dollars across the country plus years of jail time for some former members. While these incidents are the exception within the ALA’s 9,000 entities, fraud is damaging to the ALA’s reputation.

iStock_000014615694XXLarge-c
Protect your ALA entity against theft and fraud by being responsible and accountable stewards of ALA money.

The ALA’s mission of promoting patriotism and supporting our veterans, military, and their families is noble; stealing money from the Auxiliary robs the ALA and those we serve, diluting our mission and distracting our focus.

What to do? Protect your ALA entity against theft and fraud by being responsible and accountable stewards of ALA money. Safeguarding your unit’s or department’s money requires written processes, checks and balances, and it is the responsibility of more than one person! ALA National Controller Tim Bresnahan, CPA, recommends the following key internal controls:

  • Have an independent reconciliation monthly of the unit’s or department’s bank account.
  • Have an independent review of expense reports and credit card statements.
  • Have deposits made independent from the recording of receipts – that means having one person make the deposits and a different person record the receipt of money.
  • Use an automated and integrated bookkeeping system, such as QuickBooks.

The ALA is a business, and every ALA entity must ethically adhere to competent business standards. As ALA National Compliance Accountant Sara Riegel wisely shares: “It does not matter whether you are a large department or small unit; the principles of operating a business remain the same.”

CHECKS AND BALANCES

These best practices from Alerding CPA Group and ALA National Headquarters are essential for safeguarding ALA unit or department assets and setting up internal controls:

  • Understand the difference between governance and management. Governance – the board’s officers and directors – sets strategic direction and policies and bears liability for protecting the organization’s financial health and reputation. The board adopts strategic goals, governing policies and the budget, and reviews reports about the same. Management – headquarters staff – executes the strategies and implements policy. Staff implement plans and policies adopted by the board, compile reports, and ensure that the organization operates effectively and ethically according to best business standards, consistent with the board’s strategic direction. The roles of each ALAleader must be well-defined and understood by all.
  • Separate duties for proper financial controls — the same individual should not receipt money in and pay money out. The secretary and treasurer should not be the same person; these are two separate functions. At a minimum, the duties of handling income and expenses must be handled by two different people.
  • Establish an executive committee to the board, a finance committee, and an audit committee – and understand their differing roles. An executive committee serves to review/research matters to help a large board function better. A finance committee oversees the investment and financial policies, reviews monthly financial statements, and with management prepares a proposed budget for the governing board to adopt. An audit committee assesses risk and makes sure that internal controls are sufficient to ensure regulatory compliance. Despite its name, an audit committee’s role is not to audit the organization’s financials itself; its role is to engage an independent auditor to perform the annual external review or audit. Because the audit committee operates impartially “at arm’s length” from the organization, audit committee members should not hold other ALA leadership positions. All three committees are confirmed by and accountable to the governing board.
  • Finance committee members and audit committee members should serve staggered multi-year terms.

The effectiveness of the ALA depends on good practices by good people qualified to serve is these roles. Critical information about good governance and management can be found in the following resources available in the Members Only section at www.ALAforVeterans.org: ALA Department Operations Guide, ALA Department Risk Management Self-Assessment Checklist, and ALA DEC 101— a training resource about roles and responsibilities of department governing boards and department officers.

Advertisements

3 comments

  1. Thank you for the validation. I’m a 1st year President , going into my 2nd year term as of 6/2018. My 1st order of business was to replace a 20 plus YEAR Treasurer/Membership Chairwoman , whom still is a Department Treasurer/Secretary still today ….
    We now have Quick books and things are much more transparent (as should be ) . She had resigned her Treasurer Chair after presenting the Budget for the year , and has now been present and awaiting reports, after meetings from what’s left of her clique . Ending my year, I personally have had 4, yes 4 RESIGNATIONS this year , Immediately filled within a day !! I’m looking forward to my 2nd year and our 100th Birthday . Awesome things to come in 2018/2019 🇺🇸

    Like

  2. For whatever reason, I could print only the first page of the blog. From the bullets on gives us more detailed info on what should be done/accomplished.

    Like

    • I’m sorry to hear you were having trouble! I’m happy to email it to you so you can print it. Please let me know what state you are from and I’ll get your email from IMIS. Thank you!

      Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s