Charity Scandal: What To Do if Charity Assets Have Been Embezzled

A Charity embezzlement incident is emotionally devastating, erodes the public’s trust, jeopardizes grants and funding contracts, scares off new donors, can attract scrutiny from regulators, and in the worst cases, can bring down a Charity.

Charity embezzlement can involve anyone: officers, directors, employees, volunteers, contractors, vendors, etc. In our experience, it is often someone that is trusted implicitly such that their reports are never questioned.

Below is a checklist which Charity directors can take to deal with the aftermath of an embezzlement incident.

Secure the Charity’s assets

Upon learning of the embezzlement, the first step the Charity leadership must take is to secure the Charity’s assets to prevent further losses. If the perpetrator was a signer on any bank accounts or had online access to accounts, revoke their access immediately. If they had company credit cards, cancel them. If the loss involved other types of assets, take whatever steps are necessary to secure them.

Preserve evidence

Preserve evidence of the Charity embezzlement by revoking access to company accounts including company email, cloud-based software platforms, and corporate social media accounts.

Sideline the suspect pending an investigation

If the Charity organization has either proof or strong suspicion of who the perpetrator was, the Charity will need to sideline the suspect while it conducts a thorough investigation. If the suspect is an employee, they can be placed on administrative leave. If they are a volunteer, suspend their clearance to serve as a volunteer.

Obtain keys and key cards

Secure the suspect’s keys and key cards if any. If there is a concern a copy was made or if the keys can’t be recovered, re-key the locks and change access codes.

Conduct a thorough investigation

It may be necessary to bring in an outside investigator. Ideally, a forensic accounting will uncover exactly how much was taken and how it was taken.

File a police report

Ideally, the Charity organization should file a police report. The police report should strictly recite provable facts uncovered during the investigation. The Charity organization does not want to be sued for defamation.

Report the loss to the insurance carrier

Organizations general liability insurance may have coverage for theft. Those with employment practices coverage may have coverage for employee theft. However, to access it, the insurer typically requires a copy of the police report. Do not delay in reporting the event to the insurer as a delay could jeopardize coverage.

Shore up Policies and Procedures

When an embezzlement, theft or fraud event has occurred, it is critical that the Charity be honest about what happened and have a good story to tell. A good story should focus on the good news: it was caught, appropriately reported to the Police and the Canada Revenue Agency, steps were taken to recover funds (perhaps they were even recovered), and the organization’s processes and procedures were overhauled to ensure it will never happen again. Depending upon the severity of the event and the level of public interest, consider engaging a crisis communications expert.

Deal Honestly with Stakeholders

If the Charity’s leadership isn’t honest and transparent with its stakeholders, they will sense something is off and their assumptions will often be worse than the actual facts. Without naming names, the better approach is to be transparent about what happened and focus on the steps that are being taken to prevent it from happening again. In particular, reach out to major funders as soon as possible. Funders have seen it all before and know that these things happen even under the best of circumstances. An open line of communication will go far to shore up confidence.