September 27, 2011; Source: NPA Consultants | The NPQ Newswire has briefly mentioned the various reports of financial misdeeds involving the Merrimack Special Education Collaborative in Massachusetts, but we haven’t put it into comparative perspective. This blog posting by a private accountant makes the comparison of the MSEC scandal (in which senior management may have purloined as much as $10 million) with two other cases he has been involved with, the investigation of the abuse at Worldcom and the scandal at Tyco.
What is interesting about the blog posting is the lessons this accountant was able to draw from these nonprofit and for-profit scandals alike. The lessons might seem pretty much standard fare. On the other hand, if they really were, we wouldn’t have so many scandals to cover. Here are a few of the lessons from MSEC and others:
- “Almost all staff, managers, and Board members are honest and well-intentioned. But that is just not enough to completely prevent either inadvertent errors or intentional abuse…
- Well thought out internal control procedures are intended primarily to help those employees and Boards really trying to do a good job….
- Well thought out internal control procedures make it harder for dishonest folks to engage in fraudulent activity; and hopefully detect bad behavior once perpetrated…
- Good internal control includes Board responsibility and behavior. Board members must be independent of senior management in every sense of that word…They should think for themselves and not be a rubber stamp for management.
- Bad internal control makes operations inefficient and risky, opens the door to dishonest behavior, and hurts company morale for all the honest, well-intentioned employees…”
Those lessons look simple, obvious, and, given examples of problems in several organizations, honored by being ignored. It never hurts to remember, study, and relearn the basics.—Rick Cohen