Investigation puts spotlight on those managing money for nonprofits
Sep. 3—Since the former executive director of Middletown senior center Central Connections was fired in July after concerns about missing money were raised, the question has been asked: How did this happen?
Diane Rodgers is now under investigation by the Middletown Police Dept. and the Ohio Bureau of Criminal Investigations for possible theft. She was terminated July 27 by Board President Rick Fishbaugh "for cause," and hasn't been charged criminally.
The center's finances are now under a microscope as the city of Middletown takes measures to purchase the building for $1.8 million with its American Rescue Plan Act money so that "essential services" can continue, said City Manager Paul Lolli.
Rodgers was hired in 2021, and some time after that, she took steps to assure she was the only person in the organization with access to its finances, said Kate Cleary, former account manager.
Cleary, who was fired by Rodgers, accused Rodgers of hiding the center's finances. She said Rodgers controlled the center's checkbook and credit card and when Cleary inquired, Rodgers refused to disclose the financial figures.
Cleary said Rodgers always opened the bank and credit card statements.
Eventually, concerned about the future of the center due to the finances, Cleary sent an email in October 2022 to the 13 board members. She said no one addressed her concerns.
"It's like all 13 went to sleep," Cleary said.
Another time, Cleary said, the center's certified public accountant showed Rodgers that the center had $165,000 in its checking account. When the CPA asked about the missing money, Rodgers replied: "It's gone," according to Cleary.
"There was no system of checks and balances," Cleary said.
That, experts say, is a "red flag" that misappropriations of funds may be happening within an organization.
The Association of Certified Fraud Examiners reports that a typical organization loses 7% of its annual revenue to fraudulent activity. Applied to the $410 billion that Americans donated to charities in 2017, that rate translates to $28.7 billion in potential losses.
According to the Avoiding Theft guide produced by the Ohio Attorney General's office, the No. 1 "contributing factor to theft is access to assets."
One Middletown-based non-profit, The Ohio Challenge, has taken steps to reduce the chance for theft within its organization, said Dave Pearce, chairman of the event.
Before any checks are written out of the Ohio Challenge check book, Pearce said at least three volunteers are involved in the process. One person approves the invoices, another prepares the checks, another writes and signs the checks and a fourth reviews the financial statements.
Four people are involved in every financial transaction, he said.
This "segregation of duties" protects the Ohio Challenge, Pearce said.
Butler County Sheriff Office Deputy Chief Anthony Dwyer said non-profit organizations that are heavily run by volunteers are "more susceptible" to theft because the volunteers believe they are "owed" some compensation for their hours.
Once the theft begins, and the person gets accustomed to the extra funds, Dwyer said it can get "totally out of control."
Warren County Prosecutor David Fornshell holds ant-theft training for non-profits every two years after his office saw a spike in theft cases.
Most of the time, he said, there are two common threads that connect those charged with thefts. They're typically a long-time board member and the only person in charge of the group's finances.
Since volunteer organizations have so much turnover, new members are reluctant to challenge the authority of the long-time member, he said.
"There is a hesitancy to delve into finances" because they don't want to offend anyone, Fornshell said.
And since those long-term board members have the "complete picture" of the finances, they exploit that knowledge and the stolen sums become larger and larger.
For instance, a board member is in charge of a baseball concession stand, he said. One week that person is having "minor financial issues" so they don't make the bank deposit immediately.
Then when no board member notices the missing funds, the thefts continue and increase.
He has prosecuted cases and those charged are shocked by the amount of restitution they must make.
The Avoiding Theft guide produced by Dave Yost's office can help non-profits "establish provisions to prevent embezzlement or misappropriation" and guide them in "evaluating the safety net already in place."
He said his office will investigate suspected fraud, theft or other activities that "diminish or threaten the valuable work" of non-profits.
He said theft happens in large and small organizations, and it often involves individuals who are widely respected and valued within the non-profit. Such transgressions might happen during a period of financial hardship for the individual, or out of spite, for revenge or because of addiction issues.
"Other times," he said, "the only explanation is greed."
He said non-profits should implement and examine their procedures without considering the trustworthiness of the specific individuals involved. Instead, he said, the procedures should be based on objective standards about how best to protect the organization's interests.
Most of those duties are the responsibilities of board members, according to the guide. They should develop internal controls, implement audit processes, and establish written policies and procedures and make sure they are followed, the guide read.
The guide said non-profit organizations should consider a range of steps to limit their exposure to theft. Some of these steps center on the importance of the separation of duties so that no one person has sole access to and control.
Staff writer Lauren Pack contributed to this report.
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POTENTIAL WARNING SIGNS
A non-profit board should be alert for these warning signs of possible trouble:
—Concerns or questions expressed by people handling the collection of funds and financial reporting
—Changes in record-keeping methods
—Overall complexity of the operations
—Unwillingness to share financial information with interested parties
—Significant changes in revenue and/or expense levels from previous years
—Problematic audit results
—Complaints
—Bounced checks
—Late or nonexistent financial reports to the board
—Unpaid invoices
—Sudden, unexplained changes in lifestyles of employees or volunteers
SOURCE: Ohio Attorney General's Office
HOW TO PROTECT YOUR NON-PROFIT FROM THEFT, SCAMS — Implement strong internal controls. Measures can include regularly reviewing invoices and billing (including by the board of directors), recording cash receipts and depositing them daily, locking the office door when no one is monitoring the entrance, creating policies to reimburse employees for only approved expenses, and periodic reviews of vendors. — Set up a corporate compliance plan. Corporate compliance plans hold non-profits accountable and usually include various policies, such as a whistleblower policy, code of conduct policy or conflicts of interest policy. This plan ensures the organization is operating with transparency and helps build its reputation among potential donors and other board members. — Get to know your employees. Employees may be responsible for handling large sums of cash, so it's vital they can be trusted. Additionally, teach employees how to detect potential scams and fraud, and encourage them to report any fraudulent behavior they may see. — Purchase non-profit insurance coverage. Non-profit insurance coverage helps protect the organization's people and assets and ensures they can continue fulfilling their missions.
SOURCE: Non-ProfitPRO
