 Let's get started and I will start by saying welcome and thank you so much to all of you for joining us today as we talk with Jennifer Aliva, CPA and managing partner also at your part time controller. We are going to talk today about fraud in the nonprofits and also some of the ugly truths that we're going to share so Jennifer we're looking forward to to diving in deep in that conversation here shortly and before we do that. We of course want to start our episode by saying thank you to all of our presenting sponsors. We are so grateful for their continued dedication and investment in these episodes. Now almost 400 and today's power week of course, and we are just so appreciative to have all of their continued to support for the sector at large and of course today. We're going to start and kick off on this Monday or as I like to call it money a because Friday gets all the cheer and Monday always gets the want want, but we're so excited to have this nonprofit power week with your part time as well as the manager and the manager and the controller, the nonprofit accounting specialist. So Julia joins me here today Julia is the CEO of the American nonprofit Academy. I'm Jared Ransom I'm so privileged to get to play along with Julia every day and our talented episode guest. I'm also known as the nonprofit nerd CEO of the Raven Group. I want to welcome back with us today Jennifer, Aliva Jennifer, you have been so paramount to our shows, really, you know just so many of our episodes in particular around this whole topic of accounting, especially as you know, you are a managing manager there here everywhere because your part time controller serves, serves so many, you know areas, but you literally have come to us on these episodes with like breaking news as Julia shared in the chitty chat chat so we are so appreciative to have you back today and then also your team this week so welcome. Oh thank you so great to be here. Thanks for having us for the whole week. So exciting. All week, and just to give everybody heads up. We're going to have different experts from your part time controller joining us talking about different things and it's going to be really exciting. We only get to do a nonprofit power week, very rarely. And so this is a big deal for everybody on our teams that we all come together, and we, we pose the question. What if we could drill down on something really intensely for that week, and pull together all these different thoughts that are kind of moving in the same direction so Jennifer we're super excited to have you talk about that with us. But the first way, the first thing we want to start about the week is kind of one of the dirty little secrets, and that's about fraud. I've got to believe that the big shocker is that fraud happens at all in the nonprofit sector. Well, we'd all love to believe because we're all doing good at all these wonderful nonprofits that this fraud never happens there but unfortunately it's not the case we see it quite often and matter of fact the Association of nonprofit fraud examiners that had studied in 2020, and found that 191 reported frauds were out there in nonprofit organizations and I think that's a very low number, because many nonprofit frauds go unreported. There's a lot of losses going on in fraud world out there because in nonprofit world because $75,000 is the median loss but the average loss is over $600,000 when a nonprofit does find a fraud it is, it could be enormous for an organization. Is that in its longevity or in a year? I think it's in its longevity I'll tell you that we uncovered, probably our largest fraud that we uncovered because often we go in when things are messy at an organization. Next sector directors don't know what's going on financially and they are like please come in and help us and then we go in and uncover what's been going on. And we find that oh maybe the controller there that has been a longtime person has been cutting checks to himself for a very long time and covering it up to the tune of three quarters of a million dollars. So that's probably the largest one that we found over the years but there's still so many other schemes that organizations come up with and that go undetected for a long time so it could add up to a big numbers over time. Wow. And like you said, these are the ones that have been reported. And we know there's 1.8 million nonprofits in the US. Sadly, yes, fraud does happen. I have actually come in as an interim CEO of an organization that had just terminated their previous CEO for this exact reason. So, sadly, I too have have seen that firsthand or really you know that the after effect of that. How does this even happen? How does fraud happen at Oregon? Yeah, I mean, you gave this example of maybe the controller was writing checks to himself. I could even say herself, theirself, right. We're really looking at like, how does this happen? How does something like that go undetected for perhaps a while. So I'm going to say two words, internal controls, or maybe it's four words lack of internal controls and overriding internal controls. That's three words. So it all has to do with the checks and balances in any organization so that there's support for all the activities in the financial area that are either being checked on or there's two people that are involved in a process that make it more secure. In an organization so I have three groups of internal controls that are the big ones that we like to focus on at your part time controller. When we teach about internal controls and those those are tone at the top policies and procedures and segregation of duties. So if you want to dig into that a little bit, I'd love to. So let's go backwards and segregation of duties. Okay, what does that mean. So that means having two people involved in a process that not one person in the organization has control over all the money where they are perhaps in the accounting system. They are paying bills. They are also reconciling accounts preparing financial reports, reviewing the financial statements and no one else involved in any of that process. I'll tell you when we work with an organization oftentimes there's somebody that is doing the transactional work that's involved in an employee at the organization. So they would be paying the bills and we highly recommend an electronic bill pay system checks anymore because actually electronic bill pay systems are much more secure from an internal control standpoint than regular old check cutting. And there's a lot of reasons why, but getting back to this like check checks and balances. So that, you know, the individual internally will pay the bills electronically and hopefully there's multiple authorizations for those bill pay. So they're not just authorizing and paying it, the executive director is part of that process or some other individuals in his part in the organization is part of that process. Somebody else comes in and performs the bank reconciliation, so that if something was going awry in the bill paying process. Hopefully that would come out in the reconciliation process and in the financial statement preparation process. Are there large variances all of a sudden Oh, a budget amount for marketing was only, you know, $10,000 all of a sudden it's, you know, 20 30 $40,000 maybe we ought to look into that so that's that segregation of duties having multiple people in the process. Okay, now I gotta ask this because we're talking about how fraud can actually happen. And one of the things is that, you know, we use volunteers, we're short staffed, we pull in people that might not be the best fit but they might have like the strongest passion for an organization. And we're like, Okay, they're alive body they're willing to do it. Do you think that we're looking away improperly or, or is that just what happens, you know, I think it has to do with the attitude from the management and the board as it relates to making sure even if there's volunteers, doing certain activities in the organization which I don't fully recommend when it comes to the financial part when they're doing operational activities but I understand some small organization need, need to have it. But it really goes down to comes down to the, the board, what is their attitude about these about internal controls and making sure that these checks and balances are in place and that they are exemplifying great ethical behavior. So that follows through whether it's employees or volunteers throughout the organization. It kind of, you know, it means is the board putting in policies that really are helpful to make sure that fraud can't happen or or it's, it's less likely to happen. For example, we're doing background checks, if even simple as that, even on volunteers that might be involved in any part of the organization for managing the financials but background checks are big. Also, they have conflict of interest policies for the board, because they, you know, also have to show that they are exemplifying great behavior as they want all the employees, the staff, the volunteers to do some. Wow. You know, it's a fascinating way to look at this, because nobody wants to talk about this ahead of time. Yeah, well, it seems like we don't want to cast dispersions, it's a delicate thing. I think a lot of us can't even process that this could happen to our organization. I mean, it's out there. And, you know, I think as a board member especially and certainly as an executive director you have a responsibility to the organization you have stewardship, fiscal responsibility to the organization and we preach to take that responsibility very seriously and making sure that things are in place like credit cards. You know, that's one of the areas that really becomes a problem often and can go awry very quickly when there's a lot of organizational credit cards flying around and there's not a lot of oversight checks and balances or any policies surrounding them and we see that all the time that's one of the areas. In addition to the, you know, check writing schemes that organizations can really get in trouble with. And so we always recommend hey don't even have company or organizational credit cards, and people are you kidding me, you know we have to have it. But it's easy enough to have perhaps an expense reporting policy where staff members use their own credit cards and then report it after. I think there's definitely a need in some organizations to use the credit cards but they really have to be checked out and evaluated and make sure that people are signing off on different approvals of those for sure. Well, and the debit card really makes my heart skip because it's like oh my gosh that is access to the bottom line many times, you know, checking account and that's really scary. Dig right into the bank account using a debit card if somebody has that that account number. The other thing is payroll, you know payroll is one of the areas that we always focus on as a potential for risk in many different ways so you have, you could have a employee that is not on staff. We call them ghost employees where someone has access to the payroll records and is able to pay someone that's not on the roster of the organization as a staff member. I can't even fathom that. That's why you have to have like the executive director should be reviewing payroll registers or a designee and say oh gosh that's so onerous executive directors are so busy. Do they have time. Yes, do they really either smaller organization, they should be doing in a larger organization perhaps, you know, a designee, someone that they trust and can review the payroll registers that's not part of the payroll process going back to that segregation of duties, because what else could go wrong with payroll is someone just gives themselves a raise. And it's just just goes on for years and years. Wow. Is that the same as maybe, you know, I have no idea but you know like vacation time PTO hours something like that is that also an area that's taken advantage of perhaps if someone does have the controls to we have not come across that of somebody padding their vacation and perhaps if they're paying out vacation at the end of the year unused vacation area. We have not come across it I can remember a scheme like that. But one thing that we have seen is health care coverage in eligible family members being added to the health care coverage. It's not dollar wise for the nonprofit organization not that easy to find, but it just goes to back to is somebody checking that after annual enrollment does everybody do we check what's happening with the, with the check the bills, you know the actual invoices that come in to see who is eligible on the plan. Those internal internal controls are so so so important as a consultant when I noticed that the board is as I would call it a rubber stamping board. That gives me alarm, because it tells me that the board, the executive team has become pretty complacent they're really resting on their laurels and maybe becoming more lax in these controls. That to me Jennifer I don't know if you've seen that or witness that or if that's maybe one of your and your teams red flags also is when the board just says, Okay, sure, sounds great. Yes, it's a red flag. And we, you know, one of our jobs is board education, and we tried to educate board members all the time as to their responsibilities, and then bring these issues up with board members and with executive teams, as far as these policies are lacking here or there and this is ways you can strengthen them. And quite frankly if we see a board that is not interested in following the rules of engagement as it relates to internal controls. In the board organization we necessarily want to work with because we're putting ourselves at risk. That says liability all over it. Now, part of that I've got to ask this question and get your opinion on this because I feel like nonprofits are so afraid of looking less and professional then, you know, frightening away their donors and fraud could be one of those areas. So I can see where there's like a vicious cycle and that fraud happens but it doesn't get reported. And it just can actually bloom in other areas and I'm wondering if you could kind of walk us through that. I think it, it all comes down to and that we preach to all of our organization is transparency. If a fraud does happen and I want to talk a little bit too about, we talked a lot about internal fraud, but there's a lot of external forces coming down on organizations that cause fraud to like cyber crime, phishing schemes that an organization might get caught up in act accidentally or following an email that says hey this is your vendor. Can we change bank accounts, send it, send that payment to this bank account it's new, and then just, and staff member at the nonprofit just sends that money right along. So that is another big risk that's really relevant and out there for nonprofit organizations and training is really important for staff members in that respect. So there could be fraud that comes from an internal process or problem or this external and either way we preach like okay first we found the fraud. Let's investigate and well let's let everybody know at the organization, the executive director, the board, perhaps their attorney and come up with a plan, as far as identifying what happened, how much is the fraud. And then is there a public relations issue that we need to take out to the world and say hey, this happened, and this is what we're doing about it so it won't happen again we had an organization that we heard of that had a very large phishing problem, like lost a lot of money because they act so again accidentally they sent the money to the vendor. And it was the wrong vendor it was a, you know, criminal and lost a lot of money and what they did was become very transparent, tell the world that this happened to us and guess what, they got a lot more donations. That month, because they were truthful about it and I will tell you, the general public does not like to hear about a nonprofit getting duped like that. Right. That is that is so transparency from that perspective is was a very good thing for them. The other thing is just really the ethical behavior of, I don't, if somebody inside stole from me, am I going to let that person go and then potentially go work for another organization and do the same thing to them. It's just not really a great thing to do so we preach transparency and getting all of those players involved. And it really comes down to a conversation with the board with the executive team with attorneys and possibly a public relations specialist when you come out with this but certainly if somebody committed a crime against you, we say, let's, let's press charges. I mean that that is the right thing to do. I wish that is what every organization would decide to do. I know that that is simply not the case, which really saddens me because as you said Jennifer, this individual could then do harm and damage elsewhere in the community and the public is so many of us working remotely from anywhere, right. It's opens up Pandora's box to so many problems. I'm curious. You know, you talk a little bit about going public with the fraud and having really this communication plan in place. Do you recommend a forensic audit and is that something that needs to take place. And I was talking about like understanding the number like how did it happen. How bad is it. I always say when there's smoke there's fire. So if we see fraud in one area of an organization say with the bill paying process, someone set up a fictitious vendor was paying that vendor. And I say, okay, let's look at all the payroll processes. Let's look at the cash receipts process. And oftentimes, the word will recommend that a forensic auditor come in and dig through more of the transactions, often in a small organization. I mean, we can help the organization at least understand that we're not fraud examiners or fraud specialists, but understanding the problems in the organization from a transactional standpoint, we can dig through that and give some feedback to the organization to see if there's any fire behind any of the other smoke, I guess. So now we don't have much time left but I would, I know that you were on a national panel not too long ago, and you were talking about one of the biggest shakeups in terms of a nonprofit. And it's still going on and I'm wondering if you feel comfortable talking about that. Absolutely. We have a webinar that we recorded a few months ago, I think, called backfired fraud at the NRA National Rifle Association. Marketing team, what can I tell you there? And so I encourage everyone to go look at that webinar to hear the background and story about the NRA because it is, you know, certainly a very public situation that's going on right now. Now the Attorney General of New York and of Washington DC started an investigation of the NRA's financial practices and other practices. Many years ago, probably in 2019, the NRA has refuted many of those claims, however, which is very interesting, a couple interesting pieces to this that we have time. So the first interesting piece is that the NRA in an effort to get away from the New York laws tried to declare bankruptcy in the state of Texas. It seemed like a Hail Mary pass and it was because Texas said, you know, you're not, and I think the purpose was to try to incorporate then in Texas where they have less restrictive laws around gun control. However, and I don't want to get into politics of this. This has to do with the financial part of things. But it's so interesting. So the Texas courts knocked that down and said, you know, no, this is, you can't declare bankruptcy. First of all, you're not really insolvent. Second of all, you're a New York organization. So go back to New York. The second thing that's super interesting is that the NRA, although they were refuting many of the allegations of the Attorney General Office, Attorney General's Office is, I guess, many of them. They put out their 2019 90 that laid out a bunch and it's it's there for the reading. It's out on the worldwide web for anyone who was interested in taking a look at it, but they detailed some of the issues that they said they did their own internal and yes, there was some overspending by multiple executives, including the CEO, and that we're in a process of paying it back, or there were some executives that they were taking issue with that weren't necessarily paying it back. And they said, don't worry about it. Now we put the controls in place that this is never going to happen again. So that is just fascinating to me when you talk about going public with your frauds, they really did. I mean, Attorney General's in New York and I believe still Washington are saying, well thanks for that information thanks for admitting it, because it was certainly an admission of certain activities, which was, again, overspending and then also compensation issues that they're investigating. But that's not enough, we're still going to be digging deep into the policies and processes at the NRA so more to follow on that story it's just, I think, again, what we teach from that is the tone at the top, has the board been involved in the policies of the organization that the organization does not fault pray to external review about their spending by executives and their compensation policy specifically in this case. And then also there's a whole bunch of you know there's allegations of a whole bunch of board conflicts that the board hasn't been completely up and up in this as well so it really comes down to that, you know, teaching of from the beginning boards need to be beyond reproach in their behavior, and then also helping the organization and guiding an organization through spending policies, compensation reviews, and making sure the organization itself too is beyond reproach. Wow. You know, and I love that you say and I were wrapping up here but you know to go public and to be transparent with this tragic event, regardless of when it happened who did it, you know, is to make that statement, but then as you make that statement to also take the action that needs to be taken to rectify and remedy those internal controls so Jennifer thank you so much. I could talk for hours about this is it is so shocking to me, although I have been involved with an agency that had to truly repair this situation, and it is just traumatic. So I appreciate you and really shedding light on fraud and nonprofits and talking about the ugly truth. It does happen, but I know your part time controller is there to safeguard and to ensure that it doesn't happen to your organization so thank you. That's what we try so thanks for having me it's been great. It's such an amazing way and it's a, it's a great way for us to kick off this week because these are the things that we don't talk about. We don't want to think about but yet they're happening, and they just. I think they reveal so much more about our organizations Jennifer and what you've been talking about has really helped us to kind of understand that. So, as we go forward, Jared and I want to say thank you so much it's going to be a lot of fun to have this nonprofit power week with your part time controller. Again, thank you to our presenting sponsors who have really jumped on board at this concept. And as I said this power week is very different because we are going to have every single day, including our Friday ask an answer, have a tie back in to accounting and the financial side of our nonprofit sector which we know is so so critical. Part of these discussions are going to be bankers in your boat and how they work and what you need to do financial best practices for boards. I think we got a lot of that today. And it's nice really well into today's conversation to. Yeah, yeah, remote accounting. This is such a big thing we're doing so many things remote how do we do that and then of course our ask an answer. So that's going to be a lot of fun. And again Jennifer, you all, we said this in the chitty chat chat, you are working with more than 1000 nonprofits across across the country, I think we're in 43 states now, going for the 50 and beyond so yes. You know really the largest financial accounting controlling service for our nonprofit sector. Yes, I mean we're, we're 325 strong on our team, and all we do is accounting for nonprofit organizations and that's our focus and our love, because we love working with the sector. We're doing meaningful work for all of the team members that we have. They are accountants with a purpose. So, so can I put our website. Yes, of course. Yptc.com so please visit that, and then also one other plug to make. We recently started this year of our own podcast our video podcast called mission business, and where we are talking about organizations mission and then with a focus on their financial practices and their business so we have three episodes out and very many more to come and fraud is going to be a big topic coming up right now. Look out for that. Awesome. Well we love it. We are so excited to venture forward with you all and your amazing team at Yptc. We really have enjoyed working with you from the very beginning and as many of you will recall Jennifer really was one of our first guests that we had on when all of this went down almost two years ago. This is, I know you're like, but this has been really, really exciting. Hey, as we start this amazing week. We want to remind everyone, once again, stay well, so you can do well. We'll see you back here tomorrow.