How to Lose $6 Million: A Nonprofit Guide to Bad Stewardship

September 22, 2017; Hawaii News Now

A 69-year-old woman and 30-year employee at the Arc in Hawaii have been charged with embezzling $5.7 million from that organization over a period of 10 years.

The Honolulu City Prosecutor finds the whole thing outrageous. “Besides the shocking amount of money that was taken, what makes this case particularly egregious is the fact that the stolen money was intended to benefit children and adults with intellectual and developmental disabilities,” Keith Kaneshiro said, in a news release.

But what NPQ finds shocking is the fact that this organization was missing an average of more than a half a million on a $7 million budget over a ten-year period and never noticed. In fact, the nonprofit organization released a statement saying they too were “shocked and saddened” when they discovered the theft.

“We immediately launched an internal investigation, took action to stop further theft, and have cooperated fully with law enforcement,” Arc in Hawaii said. “We have implemented new procedures and financial controls we believe will prevent similar crimes from occurring in the future.”

But the horse is now out of the barn, so perhaps the only thing that can really be gained from this situation is a reminder to our readers that when it comes to financial staff, accountability is a must. Embezzlers often inspire confidence and encourage overdependence on their competence. It is foolhardy for a nonprofit to accept financial statements without an excellent array of checks and balances. Thus, the image of the elderly, long-term, apparently super-dedicated and loyal employee as embezzler is not uncommon.

Further, even though in this case it was the audit that finally uncovered the issues, you can’t and must not depend upon auditors to uncover wrongdoing. The time to institute new financial procedures is not after you have lost most of a year’s budget, but long before—like right now—and that may start with demanding and paying attention to a management letter from your auditor.—Ruth McCambridge