It is never a good time to hear that a nonprofit organization has had hundreds of thousands of dollars stolen from it, allegedly, by a long-tenured bookkeeper. And to have heard the news two weeks before Christmas makes it even more difficult to fathom. But that is what was reported by federal authorities and Marissa Parisi, the executive director of Hunger Free Vermont.
Ever since 1993, Hunger Free Vermont has donned many hats in carrying out its nonprofit mission: "Hunger prevention through expanding access to nutrition programs that nourish Vermont's children and families." This mission is now being seriously challenged from the impact of the recent embezzlement.
According to Parisi's comments to the Rutland Herald, "Some of that work is now threatened and planned expansions will have to be deferred." And in the meantime, much needed funds and staff time will be diverted to construct the facts relating to what the Herald described as "a massive embezzlement." Not unlike many other Vermont nonprofits, HFV is not steeped in staff or endowment assets.
The other tragedy, while not at the level of being unable to feed thousands of children, is that this embezzlement should never have occurred. It appears that the staff, board of trustees, and volunteers at HFV projected a high level of trust — absence verification. How else would one be able to fabricate cash reserve balances that were proven to be non-existent? A simple examination of the organization's bank statements by an independent party would have uncovered this fraud — and not have allowed it continue for seven years or more.
Several years ago, in Ira, Vermont, a long perpetrated embezzlement was able to go on based on unwavering trust in that village's treasure. It had been discovered, by a newly elected select board member, who had insisted on reviewing the village's bank statements. At which time, the embezzlement of over $400,000 of village funds came to an end. At HFV, it was a bank employee who had called attention to the theft.
In a recently issued guide by the Vermont Attorney General's office, Understand Your Responsibilities: Guidance for Board Members of Charitable Nonprofit Organizations in Vermont, notes, "In legal terms, as a board member, you have a fiduciary relationship with the organization — an obligation to act as a steward of the charity." The board guide goes on to note, "Ensure regular oversight of finances through internal controls, a dedicated finance or audit committee, and external audit or review." Interestingly, HFV did have an annual audit.
I am in no position to judge as to whether the board at HFV was in fact carrying out its fiduciary responsibilities. However, the size of the embezzlement, in the hundreds of thousands, and the long duration that it was being perpetrated leads me to conclude that the board was not and they are not alone — it is common at many other Vermont nonprofits and municipal agencies – to continue to rely on trust and no verification.
Trust is not an internal control; it is a feel-good attitude and has absolutely nothing to do with carrying out one's fiduciary responsibilities. I would urge boards to review their organizations' existing internal controls, as well as those controls that should be in place but are not. And even if it costs a few hundred dollars, an organization should engage its outside accountants when they prepare the tax Form 990 to also provide a review of the organization's internal controls.
Embezzlements at nonprofits are costly. We must take into account not only the actual funds lost, but also the diversion of time, and the doubt by potential donors and grant makers as to the organization's ability to secure its funds. Hopefully, HFV will be able to recover and continue to carry on its mission. In the meantime, board members should take the time and read the A.G.'s guidelines.