Not For Profit Shared Interest Group

• Free or extremely inexpensive: To ensure funds go toward the girls' activities.
• Collaborative: Allowing for "dual control" (e.g., a Service Unit Treasurer and a Leader) to provide oversight.
• User-Friendly: Simple enough for a volunteer to manage alongside work and parenting.

• Wave Accounting: Excellent free tier for transaction tracking and receipt scanning, but you need accounting knowledge to really understand what you are doing. 
• MoneyMinder: Specifically built for volunteer groups/PTAs with built-in accountability features.
• ZipBooks: An intuitive interface that simplifies expense tracking for non-pros.

Unfortunately, this is a major problem for nonprofits. I teach a whole class on small business and fraud prevention for entrepreneurs, but the same risks are present and even magnified in the nonprofit sector because of using volunteers, many of whom are operating in a capacity for which they lack adequate training and education. 

Risk areas:

• Cash handling for sales and events
• Inventory theft
• Silent auction item theft
• Lack of internal controls for accounting function
• Lack of audits and oversight
• Theft from petty cash or bank accounts
• Honest Mistakes from lack of experience/knowledge
• Missing required reporting (1099s, state filings, 990)
• Cyber fraud

I started out writing this reply with a detailed case study on cash management for an organization I work with, but I realized I could spend all day reciting examples and details that few people would want to read.  As a fractional CFO for nonprofit organizations, I see a lot of organizations that have issues. I don't think it is possible to eliminate all risks because humans find ways around them. The best we can do is be vigilant and volunteer our expertise to help the organizations we work with develop best practices.

Hi Barbara:

You are spot on, and in many ways there are parallels between small business and non-profits.

However, in addition to what you mention some of the other areas of complexity is that non-profit accounting particularly revenue management and tracking is more challenging. With volunteers managing and being involved in sometimes key roles, this becomes difficult and a challenge in many instances.

Hello Barbara,

My journey with the Girl Scouts began as a volunteer, inspired by my daughter, and transitioned into the role of Treasurer due to my professional background. Through this experience, I have observed that many troops lack a clear understanding of financial management, often relying solely on bank feed data for verification.

While there is an underlying assumption of trust-that "These are all Girl Scouts, and they would never steal"-the reality is that opportunity and need can lead to misappropriation of funds. Although I frequently offer my expertise, my guidance is often viewed as "over-cautious."

For instance, I have access to the night drop box and deposit bags at our local bank, a resource I continuously try to promote. In our troop, we mitigate risk by depositing all cash sales within two hours of a booth closing. This crucial step immediately removes the opportunity and temptation for unauthorized access to funds.

As the saying goes, "You can lead a horse to water, but you can't make it drink." We can only provide so much direct guidance. This is why I hope to gather more ideas for practical financial tools and applications from the IMA community that volunteers will be encouraged to use, thereby effectively protecting the financial interests of the girls they serve.

I agree with all of Barbara's points and as a non profit consulant and frequent volunteer/board member I often see poor training and systems especially in volunteer organizations.  Fiscal management is complicated by turnover, many folks are trustworthy and careful but problems arise when someone realizes there is minimal oversight.  The best financial management tool is oversight. There needs to be multiple people who have eyes on cash receipts and disbursements. Financial management programs are helpful if not too costly and if people can be trained on them. 

For small volunteer organizations, who do not have state/federal reporting requirements, I have had success with shared spreadsheets in google or excel. A simple spreadsheet acts as a check register highlighting date, amounts, to/from, and purpose; this tracking can be compared to bank statements and provide basic reports on success of events, dues received, payments out etc.  I prefer to have 3 involved: one person prepares/manages, another is an approver and a 3rd can audit/review activity - that is helpful.

When cash is involved, depending on volume - I would make sure at least 2 people are involved in counting, 3 are preferred. Best practice is to have it deposited as quickly as possible.

There are always personalities and the key is to present this as 'not a lack of trust in those in charge' but as protection to them as well. No one wants to be accused of fraud and good policies and oversight protects the organization and the individual. Good luck!

Love all the excellent points everyone is making. Fraud and theft are huge risks, especially where internal controls are lacking. That's true of any organization. We like to think that the nonprofit sector brings in the most honest and dedicated people, but that's just wishful thinking. Fraud shows up where there is opportunity, incentive, and rationalization - the basic fraud triangle.  Anyone can find themselves in a situation that creates an incentive and it can be a small incident that leads to a small rationalization that grows into a major problem.

Revenue recognition is also an issue in nonprofits with pledges that cross fiscal years. If they are operating on a cash basis because they are small enough to have minimal reporting requirements, I think materiality and conservatism principles make that ok until they get bigger. I would be less worried about them not recording uncollected pledges because in reality if they are small not to require in depth reporting there is a real liklihood they won't collect all the pledges anyway.

In my opinion, I think the IRS looks at this sector from a risk/reward perspective. Nonprofits are meeting needs in the community that the government simply can't. They know small nonprofits are made up of humans with a passion to solve a problem and they don't want to over burden well-meaning individuals with restrictive rules they won't be able to follow because they don't want to prevent the good work from happening. They know there is fraud, but the administrative cost on the IRS to find it and prosecute it is not worth the reward of catching the fraudsters because the individual losses are smaller and the cost to find and recover outweigh the gains. That's why the IRS doesn't focus on the small nonprofits. This makes small nonprofits easy prey for fraudsters both within the organization and from external fraud.

In the case of organizations like the Girl Scouts that have a national presence with hyper-local subgroups, it is incumbent on the parent organization to develop and deploy best practice training and global financial reporting systems. But even with that, it will be difficult to mitigate all potential fraud due to the volume of smaller troops and the ease of collusion at the troop level. Add to that you have a vast range of skills and experience levels among the parent volunteers.  

For the small nonprofits that aren't affiliated with a larger parent, they are largely on their own in terms of training and tools. Some communities are fortunate to have organizations that serve the nonprofit sector with free education, but it is still a big undertaking to find and train them all.

So, how would we solve the problem? One thing that might help would be an all-inclusive, cloud-based accounting software package that includes donor CRM, program delivery tools, inventory and sales modules, and an accounting system that segregates expenses based on the 990 reporting requirements and has modules built to track grant revenue and expenses by different programs. I see a lot of nonprofit using multiple tools for these things, but nothing I have run across does it all at a reasonable cost for small nonprofits and inexperienced users.  If anyone knows a system that does all this, I would love to learn about it.

I agree with a lot of Barbara's comments. As a CFE, I will tell you that the monetary value of the loss is greater the higher up/more trusted/more authoriative the person is. We tend to institute a lot of controls at the lower levels but that's where the lowest dollar amount losses live. 

In my work with small volunteer-led organizations, the biggest control that can be in place is oversight and standardization. If all chapters are required to do things the same way, then its easy to spot anomalies in the process or results. Some of the controls I've seen work well:

1- No cash or checks accepted. All receipts are electronic via 1 or 2 standard portals that connect directly to the bank. Dual authorization is necessary to alter that banking link .

2- If checks must be accepted, they must be logged and pre-numbered receipts sent to the payers. Plus if this is done electronically through a CRM or accounting software. If there are a high volume of checks, utilizing a lock-box to receive all checks is still a thing and is a great control. 

3- If cash must be collected, 2 independent individuals (not in the same family) must count independently, sign off, seal bag, and travel together to drop in deposit box at bank.  

4- At least 2 board members who lack access to make bank transactions should have access to review the bank account and sign off every month that they have reviewed the bank reconciliation as well. 

5- Dual sign offs for any wire or ACH transactions from the bank account

6- All electronic payment accounts must be in the name of the organization and linked directly to the organization's bank account- Not timmy's mom who uses her venmo to collect and send one check to the organization. 

7- No payments made out of paypal/venmo/cashapp balances except refunds to original payers, in the original format they used to pay. 

8- No cash withdrawals authorized

9- Those with purchasing authority get a purchasing card (Divvy/Expensify/Ramp/Etc) with spending controls. Other board members review and approve transactions each month. Nothing is purchased by cash or check.

10- CEO/ED/Leader's expenses are reviewed by the board at least quarterly. 

11- If this is all volunteer/board led, the board can be split into 2 teams in order to have some separation of duties between them and allow for accountability. 

12- Mandatory board training- Board members are legally required to exercise the duty of care, and can be held accountable if they don't. Training on their responsibilities sets the expectations of accountability that you uphold with all the procedures. 

These are just a few thoughts as I read through this. 

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Sarah Loghin CMA, CFE, CPA
Consultant
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Very good chime on the platform, thanks for sharing Dear Jessica.

1st hand experience is not just valuable, but also fosters community building here and beyond.

Looking forward to observing the upcoming threads and engagement.