 one of our reigning supreme guests has been with us since the very beginning and we'll talk a little bit more about that but we're going to bring in the new CEO of your part-time controller, one of our valued and one of our very first corporate sponsors to talk about fraud and it is it's something that we can't be fooled by and so we were like we got to put you on April Fool's Day because this is a big deal so uh we are thrilled you're here we're also thrilled that we have our amazing sponsors with us and they include Blumerang American Nonprofit Academy, Nonprofit Thought Leader, Staffing Boutique, Your Part-Time Controller, 180 Management Group, Fundraising Academy at National University, JMT Consulting and Nonprofit Tech Talk. Okay first and foremost Jennifer there were times in the very beginning of the non-profit show where you working from the east were on your phone you were on our live program you were monitoring what congress was voting on because that would impact the non-profit sector you were with us when things were crazily changing amazing and you were a senior leader number two now you're numero uno congratulations thank you so much starting March 1st and my new title as CEO well talk to us up here I know it does the payroll the spread of taxes talk to us about what YPTC does first and foremost um yes in terms also what you do and the ecosystem that you're now leading yeah thank you it's so great to be here Julia with you again and yes you believe it's been four years since COVID and the first time I was on the non-profit show and we were in the heat of it as you said helping non-profits get informed about PPP and since then we've just loved partnering with you and the non-profit show to let non-profits know about proper financial management and we're just so happy to be part of it and I'm really happy to be here today a little bit about your part-time controller we provide financial management to non-profit organizations and we serve close to 2000 believe it or not non-profits of all shapes and sizes throughout the United States we help organizations with bookkeeping month and close I mentioned that in the beginning it's April 1st it's time to close the books financial reporting analysis budgeting and forecasting auto preparation and readiness and so much more mainly what we like to say is we help executive directors and board members sleep at night by knowing that their financial management is taken care of but organizations call us in times of need sometimes they're worried about fraud happening in their organizations and they would have they would love to have a second set of eyes on their books and help them get on the right track with best practices of and processes for proper internal controls you know it's got to be when you're in the thick of it and you're operating and managing whether you're a board member or you're you know on the paid staff you really kind of only know what you know you only know your environment but when you partner with somebody like yptc you bring like a whole arc of all these other experiences and knowledge that I feel like you can prevent somebody from falling into the abyss of fraud and so I've got to ask you about to start with this point because I think a lot of people are shocked that fraud happens in nonprofits but it happens it happens too often and you think oh nonprofit organizations how would somebody hurt a nonprofit organization and the most vulnerable of constituents oftentimes that are being hurt and but it happens often and I think the vulnerable part is the important phrase there because organizations think that they might not be at risk nonprofit organizations because they are doing good for the world and they're helping others and that fraudsters wouldn't prey on them but unfortunately it happens both from outside environmental issues such as cyber risks but also there's often an inside job where believe it or not there's bad characters that actually work for nonprofit organizations so I'm glad you brought the board we talked about board management and oversight up because that's a really really important part of a nonprofit's function uh board members have to know what's going on and that's what you were mentioning that we help board members understand what's going on in the organization but I'm going to start out with a story about how what board members need to be asking about yeah because I think a lot of times people are like oh I'm just a board member this is you know I would feel bad but this isn't going to really impact me and I think you're going to tell us not so fast yes yes yes so um ripped from the headlines right the old law and order sorry the Washington Post this is recently I think just in the past month reported a story of a founder of a DC nonprofit that serves LGBTQ youths of course homelessness is their issue and can you imagine they are the most some of the most vulnerable kids out there um and this actually unfortunately was an inside job and something where in a situation where the board missed the mark so um this organization that executive director executive director fraudulently obtained funds from government supported loan programs and diverted these funds to her bank account located outside the United States as well as stole from the organizations in other ways like giving herself an unapproved raise so all told it was over a hundred I'm sorry eight hundred thousand dollars eight hundred thousand dollars in loss to the organizations so there are a lot of red flags before this was even uncovered all of the losses were even uncovered number number one the organization was paying workers less than minimum wage and also not paying workers all the wages that they had earned so you gotta think that the board unfortunately was asleep at the wheel with this one the organization is now in receivership and the receiver is suing the board for improper oversight so board members actually have some legal responsibilities as well as very specific fiduciary duties that include a duty of care and financial oversight so uh I won't go into all of the all of the duties of care and financial oversight um go to yptc.com to learn more uh and uh we have done several web webinars uh associated with board members responsibilities and fraud so check them out we have a ton of resources on our website but here's I have a few quick tips for board members first of all as it relates to their financial management responsibilities first of all make sure that the individuals working in the financial management of the organization have proper financial management experience it's really just a basic basic um issue I mean making sure that the financial management um people working in financial management have that experience I mean that just seems such um baseline but it's important that board members question who is doing the bookkeeping the financial reporting etc etc and we have to make sure I think YPTC comes in a lot of times when there's not that individual or team uh that has the proper experience a lot of times the non-profits really small and they have what we call the accidental bookkeeper hey you're pretty smart you can do a lot of things you can handle the quickbooks and oftentimes it's perfectly fine for a non-profit that's a small in size um but after after a while you need to get financial reports um you need to have analysis you need to have um budgeting forecasting and a lot more is to the financial management than just keeping the quickbooks so just make sure that you have the proper people doing the financial management in your organizations you know I think it's interesting that you I think that's like logical and I don't think we talk about it enough but I really like that you linked that back to the board that the board needs to be asking that question and I so I want to amplify that a little bit because I think a lot of times it's kind of a mysterious thing I I always say you know that accounting finance team they're in the back they're in the corner and and there isn't that engagement piece that the board really should be demanding so I'm thrilled that you brought that up so I interrupted you sorry oh that's okay board member board members should well the board should absolutely have a finance committee and the members of the financial management team of the organization should be attending those committee meetings presenting financials it shouldn't just be the executive director attending those meetings the board and that's one of my other top um uh requirements for board members to do is require the organization to be producing monthly financial reports I can't tell you how often we start with an organization that is not producing monthly financial reports and it's not just the production of those reports but they have to be timely soon after the month end is closed within two weeks the management and board members should have the financial reports they need to be accurate the board and management need to be able to rely on those financial reports and they need to be in a format that's understandable for both management and the board and if they're not then the board member is required to ask questions and find out why are these financial reports not understandable why can't I make heads or tails of them and oftentimes what it is is the board member is intimidated by financial management they say I'm not a financial management expert I don't have that kind of background and experience so who am I to ask these questions well I am saying you are responsible for asking those questions and oftentimes it's those individuals that don't have the financial management experience that do ask the right questions and get to the bottom of problems before they become a gigantic issue for an organization so don't be intimidated to ask questions here's some questions that the board members should ask of course what is the background and experience of those in your financial area yeah how do bills get paid who has that authority and side note if you're not using an electronic bill pay system at this point and there are paper checks being used it's time to really ask that question and to change that because not only is the an electronic bill pay system way more efficient than check signing it also is stronger for internal controls those checks and balances of the organizations you should be asking how often financials are produced and we just answered that question the answer should always be monthly and then another good question for board members to be asking regularly who is responsible for reconciling the bank accounts are they being reviewed I always recommend that the executive director at least discuss what's happening with these bank accounts and put I would say not necessarily every month but regularly put eyeballs on those bank reconciliations and understand what is happening so that the executive director can report to the board indeed bank reconciliations are happening are happening and appropriately monthly and that's again where YPTC comes in oftentimes we're the outside party putting together the bank reconciliations because it should never be the person performing the bank reconciliations that has authority to send money out whether electronically they're pressing the button to send the funds out directly to vendors and others or signing checks smart for hours about yeah I'm glad you brought that up I have a quick question about this is that it seems like from COVID a lot of boards have moved to moved away from monthly meetings to quarterly meetings or meeting on on a zoom type of platform right they're not IRL out in real life and it's to me like that's a great opportunity for an organization to say yeah we don't need to be doing this every month we can kind of hurry up and get it all done before the board meeting how do we navigate so that our boards are saying yeah we might not be meeting together but this still needs to come to us monthly how do you reconcile that to use an accounting term I would say as I mentioned before finance committee because boards can delegate they shouldn't full board should not be delegating all financial responsibility to the finance committee every board member has responsibility for the finances of the organization but if you have a strong finance committee the finance committee could be meeting monthly reviewing the financials with the executive director and the individual whether it's YPTC or someone on the team doing the accounting to look at those monthly financial reports and then reporting up to the board on a quarterly basis but I would also still recommend bringing the person in charge of financial management to every board meeting because it should be absolutely a part of every board agenda that they discussed financial management okay thank you because I you know I just as like one of those trends I'm seeing and I don't know if you and your folks are seeing it but you know pulling out that time in between meetings and then to me this is like kind of one of those reasons why things can fall through the cracks so yeah yeah absolutely um so uh the other thing on this April Fool's Day that you should not be fooled with is uh cyber risks I know you've had a lot of guests on your show and probably guests that have a lot more knowledge and experience about cyber security than I do but I certainly have seen and we have seen our share of cyber frauds hitting our non-profit organizations and I will tell you this non-profit or I'm sorry cyber criminals don't care if you're a non-profit okay and again they look for these vulnerabilities of individuals and they think oh it's a non-profit maybe they are going to be more vulnerable and we can hit them and and you know cyber could really cause a lot of damage cyber security breaches can really cause a lot of damage at a non-profit organization whether it's financial loss reputational damage legal liabilities and very specifically disruption because if you have a cyber attack your regular business is not being attended to you are going to be focusing on that issue um yeah don't think it's not going to happen to you don't be the fool definitely not um phishing's the worst one and we're still seeing it so often um with AI emails and everybody knows what phishing is right it's it's malicious emails that are intended to trick the reader into revealing personal information or um deploying malicious software and often asking the recipient for money or send gift cards and with AI these emails are looking more and more real I mean I shouldn't be surprised but I am always surprised when I hear about a person um getting fooled um entering credentials into this fake email and even senior managers I see doing this um but again it's crying on your vulnerabilities when we're tired and stressed and um we let our guards down and that's what the fraudsters are waiting for so amazing and I think that that is um I'm glad you brought that up because I think a lot of times we're we're just trying to get through our emails so fast it's coming in that way and we're you know maybe standing in line for coffee and we're just trying to kind of make life easier supposedly and then these things just you know snowball and I will tell you when people are looking at emails on their phone I think they're more at risk because especially else you know maybe I don't have my glasses on I am in wait I'm waiting for coffee and I'm like oh let me just go on this oh Microsoft is asking me it sounds it sounds like it's coming from my IT department that I have to re-enter my credentials and um or I'm you know gonna get shut down my all my accounts will oh of course I have to answer that no obviously you want to stop and think about that one um the bank um even your boss it's coming from your boss and a lot of people now that I'm CEO they're saying I'm getting a lot of these fake emails from you Jen asking me to do you a special favor I'm like uh yeah I promise you I will not be sending you an email to say send money somewhere so don't people get caught in that even though it sounds so ridiculous yeah oh my gosh well you you know I think you got to start with what is it that's going on and how does the ecosystem like work because it's changing so rapidly but what are some basic things that we can be doing to prevent fraud because it seems to me from talking to folks around this world every day in the nonprofit in the NGO space they never address this until they've had a problem yeah yeah you know even with all the AI that's happening the deep fakes you know whoever thought deep fake would be a thing uh now not only can you get uh preyed upon in your email you potentially could get preyed upon in a video conference call recently the Guardian reported that there was a 25 million dollar fraud uh from a bookkeeper who was faked out by a um on a video call uh by AI it wasn't an actual person she was talking to is that crazy so how do people prevent fraud well first of all top-down approach you you have to have a proper tone at the top the board and the executive management team needs to set the tone that we will not um we are going to be an organization that is going to have strong internal controls uh be ethical in all things that we do so we want to have that top-down that means we're hiring the right people we're doing proper background checks on everyone um most importantly those individuals that are working in the financial management area and also um and even board members um I have a story that or saw a story in the news that um uh board members had joined this board in Washington DC but were already in the middle of a um fraud case that they were being convicted of fraud at their previous nonprofit and the organization that they joined did not conduct background checks so uh here you have a board member that has a uh is a convicted felon on on your board you can't you can't be having that so tone at the top background checks so important um also the checks and balances uh typical in any that you should have are uh as I mentioned before bank reconciliation closing the books every month and issuing monthly financial reports that have comparisons to your budget and to prior year and looking at those variances why do you have a variance to budget why do you have a variance to prior year oftentimes um not only that there's errors in the financials there might be something that pops out at you um that is um going to unravel as potential problem um as well as being you know just really good practice to understand you know we set this plan in the beginning of a budget and and and where are we now right it seems to me like a lot of times with these things we wait too long and then it's like well that was a miss we'll do better next year I mean you know so which is just like the absolutely the wrong strategy to take versus saying okay here's a problem that might become a trend that might become problematic it's it's just um a good structure of management and I think you made this comment in the very beginning of today's show and that is people are intimidated to ask questions or to challenge something like this and so like I see how it just kind of perpetuates you know it's a really interesting thing and it it's so problematic we don't have a lot of time left but I didn't want to let you go today without talking about the value of strong internal controls what does that look like for the for any size of nonprofit and has that not one person in the organization has the power has the power to approve purchases approve vendors vendor approval is so important and also send money directly to to vendors and others and be reconciling the bank accounts so it's just not giving one person all of that power and even at a small organization it's it's okay to have a few well I shouldn't say it's okay even in small organization you want to separate those duties and there's a there's a way to do that you can get your board treasurer involved you certainly can get the executive director involved in making sure that there are the proper checks and balances that not one person can be doing it all such such words of wisdom and I think it's a new dawn for understanding these things because we have become so digitally oriented and there's all this fintech and we need to be looking at the way we navigate things in a in a in a new way that I personally believe is a better way right you know that there's there's more opportunity for everybody it's not just a function of fraud but you know that we we can be more significantly managing our organizations right and completely agree and with the dawn of electronic payments obviously payroll we've been doing electronically for years and years and years ap accounts payable has just really caught on since covet as far as especially nonprofits paying their bills in electronic workflow way like a bill or into it is now starting to have their own into it as quick books quick books online and starting to have their own ap workflow as well that gives you ample opportunities to set up processes in which vendors are properly vetted and approved we're getting w nines from vendors making sure that they're real um and also making sure that there's someone that is in the books setting everything up but then there's a workflow for approvals of all those payments it also as you mentioned gives everyone opportunity again involved program managers um directors of development and such each should have their own separate budget and be responsible for approving their two you know two a certain dollar amount uh that you set up uh approving their own payments and then ultimately um someone who's not doing the bank reconciliation should be the one sending um and approving finally and sending the money out I love it you know I think that this is just um has been a fascinating conversation with you today and you know I think it it is um a conversation that it just helps the overall health of an organization this is one of those things that you need to be thinking about so you can grow and that you don't move backwards and that you're always you know trying to stumble over solutions versus being proactive and being you know marching towards your mission and the things that you want to do and so these structural issues um I think they've never been more important fraud aside fraud might be the reason why a lot of people make changes but ultimately Jennifer it seems to me like this is just inherent good business right it's good business for nonprofits nonprofits don't often think of themselves as a business but they are that I can are nonprofits are public institutions all of their information on a 990 is public information and um the press is very interested in uh understanding of nonprofits and and also all of the charity watchdogs are very interested in ensuring that nonprofits have proper financial management and honestly it's a good thing because donors want to know that an organization is properly managed and and well run right well Jennifer leave us CEO chief executive officer of your part-time controller one of our very first go-to people when we started the nonprofit show um at the onset of the COVID pandemic um wow it has been such a joy to see your organization grow it has been such a joy to see you grow and to see this team I refer you and your people all the time to nonprofit leaders throughout the country so I know it's working I know from the people that I engage with or interface with that your team members are really brought forward a lot of great ideas and solutions and so it's just been a joy to have you even though it is April Fool's Day we're not as you said being full we're not fooling around with this topic let's not fool around um again we're we're so happy to be part of the nonprofit show and uh uh I hope everyone that's uh watching today uh this is our website yptc.com and and checks us out when we're on the show I know we have another fraud episode in August and also check out our mission business podcast Julia Patrick is going to be a guest uh of coming uh in the next few months I think I'm we're doing our interview in the next few weeks but I think so I think so no I'm your content is amazing and and I'll just say this quickly you don't have to be a client of yptc to get access to this amazing information so um I think that's really um a valiant effort because it always seems like you all are always trying to elevate you know our sector and elevate the conversation and um and that's really powerful but anyway the new CEO of your part-time controller Jennifer Liva we're delighted that you've joined us today we are also delighted to say thank you to all of our amazing presenting sponsors they include Blumerang American Nonprofit Academy Nonprofit Thought Leader Staffing Boutique your part-time controller whoo-hoo 180 Management Group Fundraising Academy at National University JMT Consulting and Nonprofit Tech Talk you know these people join us in our sector every day to make things more achievable when it comes to our mission vision and values so check them out they really do support our sector um all right you know every day we end with this mantra um and we have from the very beginning and I was thinking oh I'll do a really funny little you know April Fool's joke and then I was like no I can't do that I have to I have to say the mantra because I truly believe it and it goes like this to stay well so you can do well Jen thank you so much we're so proud of you thank you it's been my pleasure thank you