NEW BANKRUPTCY LAW HAS IMPLICATIONS FOR NON-PROFIT BOARDS
It isn't law yet, but within a month or so, expect President Bush to sign into law the overhaul of the bankruptcy code that passed the Senate last week over Senator Ted Kennedy's strong objections. Even the conservatives on the McLaughlin Group had some critical things to say about the legislation.
There are some specific provisions in the legislation that will impact non-profit bankruptcies. We are working on an analysis of those so stay tuned. But there are more immediate concerns in this legislation....
| Our Guide, Avoiding Trouble While Doing Good, A Guide for the Non-Profit Director and Officer, includes an extensive discussion of financial controls. You should buy a copy of our Guide today so that your organization doesn't become a victim. Call us at 773-325-2124 for additional information, or visit our website at http://www.charitygovernance.com. We also do on site training. |
The legislation will make it much more difficult for many individual to file bankruptcy, leaving them at the mercy of their creditors. Imagine telephone calls at all hours of the day. People garnishing your wages. Credit cards being canceled. No money to buy food for your children. The pressures will build.
So what does that mean for non-profits and their boards? Now is the time to begin a complete review of your organization's internal and financial controls. The law of unintended consequences points to increased levels of embezzlement and financial crimes as people who are in debt up to their ears struggle to repay it without ready access to bankruptcy protection. We are not saying that everybody who is facing financial trouble will engage in criminal activity. However, there can be little doubt that the pressures created by denying access to bankruptcy will cause some people to turn to financial crimes. Your organization is a potential target, particularly if it has inadequate financial controls. The organization's board should consider:
A. Implementing background checks.
B. Tightening controls over cash and checking accounts.
C. Implementing whistleblower and employee tip programs to encourage employees to keep their eyes open for fraud.
D. Establishing prescribed lists of vendors.
E. Revoking employee credit cards.
F. Monitoring cell phone bills) personal calls.
G. Controlling access to office supplies.
H. Reviewing the management letter provided by the organization's independent auditor describing weaknesses in financial controls.
I. Obtaining fidelity insurance covering your employees.
All of this sounds obvious once you think about it, but there will be naive organizations that fall victim to financial crimes perpetrated by desperate employees and other people who come in contact with these organizations.
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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.
