Our Executive Director is Embezzling

It's the phone call no board member wants or ever expects to get: word that the organization's executive director is being investigated by the police for embezzlement. In this First Person Nonprofit article, Vernon Waldren, board member of the Nonprofit Association of the Midlands in Omaha, Nebraska, talks candidly about how the story unfolded:

We got a call from someone at a different nonprofit letting us know that our executive director was probably going to be arrested for embezzlement at their organization, where he was on the board. Our [board] president got that call on a Monday morning, and she called a meeting of the executive committee at 5:00 that evening.

What we learned was that this other organization was working with the police to determine whether there was enough evidence for an arrest, and that there probably would be an arrest. My first reaction was disbelief. I didn't know if he was guilty or innocent, but still you're surprised, you think, "okay," and then you're disappointed, and then you think, "If it's true, why would somebody do that?"

We had a three-hour meeting that night, and we knew we needed to do something appropriate for the membership and for the donors. We went through all the scenarios.  Whether or not there was an arrest, there was enough corroboration that we needed to do something.

One thing that made a big difference was that we had great people on the board. We had a good mix of backgrounds, and every person had a connection to at least one other nonprofit, so we knew what we were about. The board chair was an executive director of a nonprofit for kids; the board treasurer was a banker; we had a nonprofit computer expert on the board, an assistant university dean, etc.  At the time I was the president-elect; now I'm the president.

Before the meeting there had been some follow-up confirming the information we had gotten in the first call. During the meeting we talked with an attorney that one of us knew, who had done a lot of pro bono work with nonprofits, and later we reached out to a public relations firm that had also done a lot of pro bono work.

Fast action

We decided -- we took a vote --  that evening to suspend the executive director with pay. He had not been arrested, but we had enough credible reports to cause us concern. We did not want to impugn his reputation. He was still an employee until we knew for sure all the facts of the matter. We didn't think there was any malfeasance related to his work at NAM, but we didn't want to take any chances. Our concern was to safeguard our organization and its reputation.

The first thing the next morning we secured the bank accounts. The treasurer was on the signature card so he called the bank and told them not to let anything through without two signatures, including one from a board member. He also put a stop on the credit card.

The board president and the treasurer got to the office early and were there when the executive director arrived. They told him what had been decided, and he was very professional, didn't argue, gave them his keys, and thanked them for their support.

When the other staff came in, they were told that the board had closed the office for the day, and they should go home, and that they would get paid for the day, and would be informed later what would happen next. Meanwhile the computer person on our board went in and secured the computer; we wanted to be sure that we had all financial records intact in case we needed to look more closely at them.

That same day, we on the Executive Committee called each of the board members  to announce a special meeting of the full board, and also advising them not to  speculate, don't answer questions from anyone, refer questions to the board president.

Two days later

Two days later our ED was arrested, and he resigned. By the time it got to the press he was therefore NAM's "former executive director." As a result we were just a minor part of the news story.

We called all the donors and funders, and every one of the members. I remember calling eBay Foundation,  telling them that our ED was under investigation at a different entity, that we had suspended him, and that there was no indication of malfeasance at our organization; she was glad I had filled her in so quickly. Imagine the difference if our members, donors and others had first learned of the leadership change by reading it in the paper!

What are you proud of?

Before this happened he [the executive director] had strong positive support from the board. Several of the board members were good friends with him. But that didn't change their being completely professional about how to handle the situation. We handled it professionally. We didn't get into the issue of guilt or not guilt. We focused on what we needed to do for the organization. We didn't go beyond what we should have done, but we did what we needed to do.

A few  years before when our ED had been in the hospital, we adopted an emergency succession plan. So we knew what to do. The board president became the main contact for the organization, and the board would appoint an interim executive director. As it turns out, one of our board members was just leaving her job; we knew her capabilities and she stepped into the ED job.

Why are we telling our story? One of the philosophies of the board is that we want to exemplify good practices, and we think we handled this correctly, and we wanted to let other people see how one nonprofit effectively handled a crisis situation.

And now?

We emerged stronger and better in terms of community relations, financial management, and board leadership. We lost no members or donors.

The executive director pled guilty to taking more than $100,000 from the other organization. He's paying restitution and is on probation. The board member who became the interim director eventually became the permanent CEO -- Anne Hindery Camp -- and she's doing a terrific job.

Vernon Waldren is board president of Nonprofit Association of the Midlands, an Omaha-based organization supporting nonprofits through workshops, joint purchasing, public policy work, a jobs board, and other services. Vernon is also Extension Educator at the University of Nebraska at Lincoln. As part of his job he works with 4H, where as a youngster he was an active participant both in the livestock program ("hogs and all that") and in their leadership development program. He wants you to know that 4H is the largest youth organization in the world, and that it teaches life skills through many more programs than its traditional farm programs.

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Comments

I'd like to know more about what was happening/going on with staff at this time. Was no one actually working for the organization able to step into the ED role (was it too small)? I get the idea of a bewildered staff watching as board members take full control of the organization, from the computer, to the financial matters, to the leadership. Is this part of the story missing? I'd love to hear a perspective from an employee - perhaps the number two person or others. Luckily for them, the organization retained its reputation and integrity, thanks to the work of the board, but it seems they were relegated to the sidelines during the events described.

Sounds like NAM handled this well. The article does not say if NAM undertook an investigation of possible fraud at their own organization, but I believe they should have. People who embezzle from one organization are likely to embezzle from another given the opportunity. Funders and donors would likely question if that is the case. A fraud examiner can be brought in to investigate and determine if fraud has occured.

I would be interested in knowing how the act of embezzelment was committed by a member of the Board of Directors (of the non-profit that was embezzled). What position on the board was he holding during this time, that allowed him an opportunity to embezzel the organization?

I am having a big issue with the blatant conflict of interest of the hiring of a Board member to take over as Executive Director after the crisis. Meaning no disrespect to that person as an individual, of course. I was ok with how this was handled up to that point. I am currently out of a job along with ALL of my co-workers from an organization who allowed it's Board to run the organization and then punish the staff when things went south. I feel that the two entities of an organization should be clear and seperate. NEVER have a Board member try and run an organization for any reason. Give the staff the information and tools they need, support them and keep an open door, have a dialogue, be informed of each other but let each person shine where they should. There must have been some by-law changes allowed in order for a Board member to become Executive Director. Hope it all works for you. It killed our 60 year old organization which is now closed.
Thanks. Good Luck.

My organization is a member of NAM and I didn't recieve any communication from a Board member regarding this situation. Please don't generalize about "members being notified", Mr. Waldren. I find that insulting, or perhaps its yet one more example of little NAM cares about its non-Omaha based members.

A couple of clarifications on the article:
- This situation occurred two years ago, January, 2008.
- The staff of NAM at that time was 2.25 FTE (3 people); the current ED was the only full FTE person.
- The staff did a great job in the transition. And were invited to apply for the position. The board member who stepped in to serve as Interim Director immediately resigned from the board.
- NAM did have a multiyear audit conducted; no funds were misappropriated.
- The misuse of monies by the ED was from another organization where he served as treasurer.
- I apologize to the one member who commented about not being contacted. Efforts were made to contact NAM members as well as donors. This was a fast moving situation and every effort was made to notify folks.
Vernon Waldren

Oftentimes when I read the Blue Avocado I find that the articles present an unbalanced view that favors the board rather than valuing staff or the exec.dir. as equally important to an organization. This article was one of those times. Clearly, there was a problem with the exec. dir., but the board seemed to take charge without including any management staff who could have been key in getting through this. Then they hired a board member to run the organization to boot! I'm sure this can work, but I have rarely seen it provide more benefit than damage to an organization. The roles are too hard to keep clear and the staff are relegated to minor roles.
A situation where someone who is currently your boss (board) can at some point be doing your job (exec. dir) is a lousy way to set an organizational structure! Maybe it works in an instance where the ex leaves first, but it can create a board that offers a fertile ground for employment and an ex. dir. job that is nightmarish.

According to Mr. Waldren's comments, the ED was the only manager; the other two employees were part time. Had it been a larger organization with an assistant ED, it would have made sense to have that person handle interim duties. The other two might not have been willing and/or capable of handling either temporary or permanent ED duties.

The reality is -- regardless of whether there is a large capable staff or not even one other staffperson -- that when there's a problem with the exective director, the board has to step in. In many cases the board knows the staff beyond the ED and has confidence in them, and there is a strong board-staff partnership that provides leadership in a turbulent time. 

On the other hand, when there isn't much of staff beyond the ED, or the board and staff have not been in much contact, some boards act without involving the staff much or at all.

It's another reminder that strong executives encourage board members and staff members to work together so that both gain confidence in the other and teach each other.  But whether or not that happens, the board acts a the public owners of the organization. Even if it's a horrible board: more reason for executives who are unhappy with their boards to strengthen them rather complain about them.

In this instance -- a constituent-based board and only two part-time staff in addition to the executive director -- I think the board acted well.

I am investigating a situation where at least the executive committee of a nonprofit knew about embezzlement, and let the exec repay the money and keep his job. What can be done when the board is clearly complicit with wrong-doing? How can changes be forced/made to ensure the longevity and reputation of the organization (or can it be ensured at all?)? Any thoughts out there on this twist to this scenario?

What's your relationship to the nonprofit?  Without knowing that, it's pretty hard to think about solutions to  the situation you're outlining.

I wonder what the NAM Board might have done had the Executive Director not resigned, but protested his innocence and gone trial with a plea of not guilty?

Would you have had to keep him on the payroll until he was convicted? After all, he had not stolen any money from NAM. At what point is it appropriate to inform other people of the reasons for the suspension?

What if the other organization had handled the matter internally?

That's an interesting question -- for an ED or another staff person. Do you need to have a policy? Is it enough to be employed at will and have the organization decide that indictment for a non-business related offense is enough to terminate someone ? What if the offense were not embezzlement of another nonprofit (which "feels" related to the employing organization)? What if it were for burglary or domestic violence?

Too bad more info like this didnt come sooner. I worked for a non-profit 3 yrs ago where the ED in my opinion was not handling the organizations money appropiatley when I approached the Board Pres about it she immediatley wanted to further investigate but as soon as she apporached the otehr board members they all ganged up on her because they were the ED's friend for many years and so they were verbally abusive toward her and they went to the ED about it. Of course the ED was suggesting removing her from the board or have her resign. This Board Pres. brought in others who questioned where this foundation money went if not used on the project she denied it and the otehr board members began attacking her. We called several state and City for help but no one knew what to do, I was told to turn it in to the IRS. She had hired an accountant who also helped her cover up the books and verbally told the board that the way the money situation is was wrong explaining to them that you cant take money from one grant and move it over to another etc. etc. nothing ever came about it the Board President resigned after the ED called an emergancy board meeting and excluded the Board Pres. they left a threatening voice mail demanding her resignation. SAD But very True and not only for this non profit that was dearly loved but this ED is also a State Democrat Representative. I seen illegal things happen and when I cried out along with the board we were shot down.

Jeff Russell: Unfortunately there are so many simple things that can be done to prevent fraud that are consistently not employed at many NPs. Fraud is a result of perceived need, justification, and opportunity. NPs can attack all three of these with different tactics and help prevent much - but not all - fraud.
Check out my blog inspired by this topic. http://youreasyoffice.com/_blog/Easy_Office_Blog/post/Fraud_and_Nonprofi...

While the embezzling ED is clearly in the wrong, it is the responsiblity of the board to call for regular audits and to establish checks and balances to make sure this doesn't happen.

I am an ED of an organization with ~1.2 million on the balance sheet and 200K going through the books annually. When I started, the board wanted me to receive invoices, write checks, sign checks, balance the check book, and make the budget reports. They didn't want to pay for a bookkeeper or an audit. I was extremely uncomfortable with the situation and said so periodically. The reporting practices were set up by the treasurer who was a CPA--my background is not accounting so I deferred to the treasurer.

A new board president took over who did not like me (for reasons having nothing to do with work.) We get paid biweekly. He noticed payroll was bigger for certain months (months with three pay periods, not two) and during a board meeting, he announced he didn't think I should sign payroll checks as payroll was larger than usual for x y z months! It was easily explained, but it was incredibly embarrassing.

Because the BOD president was certain I was mishandling funds, he called for a review of our accounts by an accountant. The accountant found no discrepencies. However, she found that the board treasurer (the CPA) had set up very 'unusual' reporting practices for me to follow; she privately suggested I watch the accounts very closely!! I shared this information with a few board members in confidence--they voted in a new treasurer. It took a new BOD president until the board agreed to pay for an audit. The audit confirmed we needed to adjust our reporting practices (the ones set up by the previous treasurer were inappropriate), create a whistle-blower policy and hire a book-keeper. Done done and done.

I don't know if the treasurer was setting me up, incompetant or just lazy--but clearly, if anything had happened, I would have taken the blame.

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