Checks And Balances Needed To Prevent Abuse Of Check Writing Authority

Written exclusively for My Community Workplace for Not-For-Profits Organizations

An Illinois man pled guilty to stealing at least $150,000 from a nonprofit for which he served as treasurer.

According to court records, the man started embezzling money about a year after becoming the treasurer. He continued the theft for more than five years. As signatory on the nonprofit's bank account, he wrote checks to himself, which he deposited into his personal bank account. He fraudulently indicated on the check's memo line that the funds were reimbursements for personal money he spent on behalf of the nonprofit.

The perpetrator used the embezzled funds to make online payments on his personal credit cards and loan accounts.

The man faces up to 20 years in prison. "Former City of Rochelle Employee Pleads Guilty to Fraudulently Obtaining at Least $150,000 From a Non-Profit Business Association" (Mar. 10, 2021).

Commentary and Checklist

The treasurer of a nonprofit, as an officer of the organization, plays an essential role in helping keep the organization on track and solvent. The treasurer maintains up-to-date accounting records, offers advice on financial strategies, and keeps other board members informed on the financial state of the organization.

However, as the above case, a nonprofit exposes itself to fraud risk when it allows this one individual sole access to disbursement of funds.

It is clear that the above nonprofit did not have a system of checks and balances in place for check writing because the man continued his embezzlement scheme for several years.

Nonprofits can help prevent this type of fraud with clear financial control protocols in place.

Here are some key fraud prevention measures that can reduce the risk of check-writing fraud:

  • Create and use a standard check request form for every check written, no exceptions.
  • Attach the receipt for all disbursements to the check request form. Let all staff members know that no disbursements will be made without a receipt.
  • Set up your bank account to require two signatures on every check.
  • Assign an individual who is not a signer on the account to reconcile bank statements with the treasurer's account, confirming that all disbursements have an associated funds request form and receipt, and represents a legitimate expenditure.
  • Do not hesitate to investigate discrepancies, even those that seem minor.
  • Conduct an annual financial audit by an outside party.
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