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With the growth of technology, nonprofits and businesses have become highly dependent on computers, laptops, cell phones, PDAs, databases, and software applications IT has emerged as a primary operational building block within nonprofits Sarbanes-Oxley compliance and best practices are highly dependent on the effective use of technology
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Dr Bernadine Healy headed the American Red Cross for two years In her short
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but stormy tenure, she discovered rampant financial irregularities within the local offices of the organization She even discovered that a local manager had embezzled $1 million Her board did not appear to be interested in pursuing these matters, but Senator Charles Grassley (R Iowa) was In an angry letter to Martha Evans, the woman who replaced Dr Healy as Red Cross President, Senator Grassley asserted that the Red Cross board had ignored: The embezzlement of $1 million by Hudson County, New Jersey, chapter officials [Dr Healy] states that information about this crime demonstrates that many of the controls presumed by you [the Board] and senior management to be in place are not there Dr Healy s assertion that the Red Cross is in need of institutional reform: Compensation information from chapters is voluntarily reported to headquarters Headquarters does not have direct access to a complete record of this information Therefore, we cannot assure the accuracy of the Form 990 (annual Return of Organization Exempt from Income Tax) provided to the Internal Revenue Service Other issues that have been festering and are widely known include the lack of accountability of chapters for annual performance; a reluctance of Headquarters to exercise hiring and firing authority over chapter executives; and a tendency of Headquarters to relegate its authority to an advisory role as it relates to chapters We have limited organization-wide systems to ensure compliance
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Senator Grassley s letter continues by reviewing an August 2001 internal document prepared at Dr Healy s request, entitled Emerging Trends in the FY 2001 Operations of s This report details findings based on 80 audits at Red Cross chapters nationwide to reveal serious financial mismanagement The examples he cites are: National disaster contributions are not remitted to national headquarters or are not remitted timely (classified as a Critical Issue ) Bank reconciliations are not completed, or not completed timely, reviewed, or tested by someone with no cash-related responsibilities and/or signed and dated by the reviewer (classified as a Major Issue ) Endowment moneys are not appropriately maintained, eg, maintained locally (classified as a Critical Issue ) Investments (eg, stocks, corporate bonds, and collateralized mortgage obligations) are not in compliance with corporate policy (classified as a Critical Issue ) Financial reports to the board are not prepared or reviewed regularly and/or do not contain adequate information (eg, comparison to the budget, a balance sheet, or year-to-date figures), and/or are not accurate (classified as a Critical Issue ) (Grassley, August 12, 2002) Although her work in uncovering what appears to be long-standing corruption within the Red Cross was laudable, she was forced by her board to resign later in 2002 because of the organization s post-September 11th fundraising and blood collection crisis
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Two common areas of dysfunction within nonprofit organizations are the management of reports of waste, fraud, or abuse commonly known as whistle-blowing and the protocols for reimbursement of travel and other types of expenses Whistleblower Protection is a SOX requirement while protocols for travel claims and other reimbursement issues is an important best practice Policies need to be in place to ensure reimbursements are handled in a consistent manner regardless of the status of the staff or volunteer As we saw in 4, two of the three crisis scenarios involved CEOs embezzling money from their nonprofits mainly through travel claims and other reimbursements that were either bogus or not related to the nonprofit s business
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