| The Desktop Guide is Quickly Becoming the Must Have Guide for Nonprofit Executives Jack Siegel's new book, A Desktop Guide for Nonprofit Directors, Officers, and Advisors: Avoiding Trouble While Doing Good, has quickly become the go to guide for nonprofit executives and advisors. So what are people saying about the Guide? When our Jack Siegel introduced himself to one of the leading authorities on the law of federal tax exemption after she had made a presentation at a recent conference, the speaker said, "You're the 'Jack' in the Guide! We are fighting over your Guide in our office." A second speaker held the book up to two people who were asking questions after her presentation, exclaiming "I love this book. I tell everyone at conferences to buy it." One state charity regulator has indicated that the Guide is great and has recommended it to her fellow regulators. Some of our readers have followed the link to the Amazon.com Web site, but apparently have not bought the Guide. If they were turned off by the price, they should reconsider. One prominent attorney in the exempt organization field grabbed a review copy of the Guide and couldn't put it down. She has instructed a number of her clients to buy it, pointing out to them that for less than 1/2 hour of her billable time, they receive a lesson (and resource) that tells it like she would like it told. If you are starting a new charity, the Guide could save you thousands of dollars in legal fees by teaching you how to better utilize your legal counsel and framing the issues so you don't spin your wheels at $400 an hour. Buy your copy today at Amazon.com. Barnes & Noble, or John Wiley (the publisher). |
neither was sentenced to jail time. The woman will be sentenced to 200 hours of community service on February 9, 2005, according to the article.
As is
sadly typical in these cases, the theft could have been easily prevented had
the Museum’s board and staff paid any attention to details. The employees were cashiers at the ticket
counter—the woman was the Manager of Visitor Services. They would ring up a sale, void the sale, and
then pocket the cash. The two employees acted
independently of each other. In other
words, there does not appear to have been collusion to override internal
controls. Ironically, the Museum learned
of the thefts when one of the employees turned the other one in. The District Attorney speculated that the
informer might have acted so that he could expand his own efforts. The Museum proved the existence of the scheme by installing
hidden cameras, thereby catching the activities on tape. OK,
who
really cares about the thieves? After
all, this is just another case of a moral lapse. Our question: How
could the Museum (and your organization if its revenues come from
admission tickets) have prevented the theft, or at least
detected it
before it got out of hand? Here are some
thoughts. Television Cameras. Proof of the activities was ultimately obtained through hidden cameras. Why wait until there is an allegation of wrongdoing before installing the cameras? Las Vegas casinos use cameras as part of their internal controls to protect cash. And they let everybody know that they are doing it. A video system could have been installed in the Museum for several thousand dollars, if that much. Of course, it would cost money to have an employee monitor the system all day. That expenditure might be worth it. However, just knowing that there would be random surveillance for several hours a day would probably have served as a less costly deterrent. Matching Assets. We don’t know exactly how tickets were issued. However, assume there was a computer that generated tickets on special paper. Each day the number of tickets issued (which should have been recorded by the computer in a password protected file) should have been matched against the receipts from the cash drawer. If the tickets were voided, the cashiers should have had to retain the voided copies. That way, the sum of the cash receipts divided by the ticket price plus the number of voided tickets should have equaled the recorded number of tickets issued by the computer. As it sounds from the press reports, the visitor received his or her ticket, and after the customer left, the ticket was voided electronically. This suggests that cash and the number of issued tickets was never reconciled. Even if our assumption about how the system worked was incorrect, there should have been a control in place to force daily verification. Number of Voids Should Have Sparked a Customer Service Review. The number of voided sales should have raised a red flag. The Whitney currently shows a basic admission price of $12 on its website. This suggests that there were somewhere between 60,000 and 70,000 voided transactions. Even if there were no theft involved, one would hope that managment would have focused on such a number because it had to have some impact on wait times. That many errors should have caused management to reconsider its basic system, or better employee training with respect to the existing system. Sales Should Equal Clicks. When we visit a museum, there is usually someone standing at the entrance to the galleries with a counter. The daily count should have been reconciled against the admissions tabulated at the cash registers. One Register Per Employee. The press reports suggest that multiple employees had access to the same cash register. That is not good system design. Each employee should be assigned to his or her own register, with strict check in and check out procedures. Review of Data and Variances. According to Line 93a of the Whitney’s Fiscal Year 2003 Form 990, it had $2,277,911 in admission revenue for the period beginning July 1 2002 and ending June 30, 2003. Extrapolating, this would mean that the Whitney had roughly $5,694,777 in admission revenue over the 2.5 year period that the alleged thefts were perpetrated. That means approximately 15% of total admission revenue was stolen. That is a material number. Our question: Why didn’t the CFO or the board notice this decline in revenue when they reviewed budget variances or comparisons with earlier periods? Also, there is no indication that there were any thefts from restaurant or museum gift shop revenue. So why didn’t the CFO or the board ask why revenue from these other operations, which are directly tied to attendance, was growing faster than (or out of line with) admission revenue? This is why reviewing financial statements and budgets is important. In short, TRUST, BUT VERIFY. The museum has about 700 to 1,000 visitors a day, and about $20,000 a day in cash is generated through ticket sales. Based on our extrapolation of the $20,000 per day number, the museum would receive roughly $5,200,000 in annual cash admission revenue. This is more than double what is reported on the Whitney’s 2003 Form 990. And the Form 990 number presumably includes credit card payments, as well as prepaid admissions through group sales. In any event, the amount stolen is a material amount. If you liked this post, please visit http://www.charitygovernance.com
for a description of our Guide/Tutorial for non-profit directors and
officers entitled “Avoiding Trouble While Doing Good: A Guide for the
Non-Profit Director and Officer.” Copyright 2005, Auto Didactix LLC. All Rights Reserved. You may not
copy any portion of this post to a computer "clipboard" for re-posting
anywhere or e-mailing, or otherwise reproduce this post. If you want
others to review this post, you may provide them with a link to this
web blog. Any use of the material or ideas in this post by reporters or
other publishers shall make reference to Jack Siegel, author of
"Avoiding Trouble While Doing Good, A Guide for the Non-Profit Director
and Officer" and this web blog. For additional information call 773-325-2124
Auditor's Management Letter. We obviously haven't read the management letter from the auditors that normally accompanies the annual outside audit. We can only wonder if that letter raised concerns about the internal controls in place to protect cash raised through ticket sales. If the letter raised concerns and made suggestions, did the board and management ignore the concerns and suggestions? In our view, every board member should be reading the annual management letter from the auditors.
On a side note, we disagree with the probation decision, particularly in the case of the former Manager of Visitor Services. This wasn’t an accident. It could not be construed as a misinterpretation of expense reimbursement rules. And it was a very large dollar amount.
We should also note that Newsday’s story presents a different set of revenue figures than we are using. Specifically, Newsday reports
THE
FOREGOING IS NOT AND SHOULD NOT BE TAKEN AS LEGAL ADVICE. IF LEGAL
ADVICE IS REQUIRED, THE NON-PROFIT OR OTHER PARTY IN QUESTION SHOULD
SEEK THE ADVICE OF QUALIFIED LEGAL COUNSEL.
