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How is Your Nonprofit Keeping Bad Publicity at Bay?

September 26, 2014

Bad publicity is certainly worse than no publicity in the nonprofit world. That was clearly evident Sunday when the lead story on the front page of the Minneapolis Star Tribune was “Nonprofit accused of abusing state funds.” Community Action of Minneapolis was the focus of the article.

The Department of Human Services (DHS) just completed their audit of the organization. The audit covered a three-year period from 2011 to 2013. The article accused Community Action of a number of abuses, some certainly more serious than others. In addition to the very poor press coverage, the organization is now required to repay $874,000! That is a lot of money, even for a $10 million organization.

To make matters worse and ensure the issue doesn’t fade from public view anytime soon, there is a political angle to the story: several legislators were on the board. One of the legislators is now being investigated by the state senate. The Community Action story will definitely stay in the papers much longer because of the political figures serving on the board. Moreover, the political figures may push back. The senator mentioned in the Community Action article has already called for the resignation of the organization’s CEO. This could drag on for months, perhaps even a year or more.

During the period covered by the DHS audit, Community Action was engaged in annual financial statement and a federal awards compliance audits with a large reputable public accounting firm.

There are a number of important reminders we can take away from this situation.

1. Organizational risk assessment should be built into the decision making process. This requires regular, ongoing risk assessment by management and the board, which includes asking questions such as “What are we doing that could end up on the front page, and are we willing to accept that?”

2. Financial statement and award compliance audits do not guarantee that everything is going well. After all, financial statement audits are not geared toward finding embarrassing or potentially embarrassing items.

3. It’s critical to provide excellent onboarding to new board members and regularly remind board members of their fiduciary duty to exercise oversight of the organization.

4. All board members should have a basic understanding of nonprofit financial statements and the organization’s business model. This helps to ensure a good analysis and inquiry can be made of management on regular basis.

At Abdo, Eick & Meyers we’ve taken it a step further: our nonprofit team has a program designed to assist nonprofits in reviewing their practices, policies, and overall environment. The goal of the program is to help promote appropriate transparency in all aspects of the organization. Some of the steps in this process include reviewing board training and interviewing board members regarding their roles and responsibilities. The program also includes reviewing all expense reimbursements and checks payable to management and board members to make sure they are within policy.

In today’s 24/7 news cycle, bad news travels much faster than ever. Taking time to review policies and decisions will always be time well spent. You can read the Star Tribune article here.

Steve Anseth, CPA, is an AEM Nonprofit/Business Partner. Whether he’s helping a client reach their goals or competing in an inline marathon, Steve is always thinking ahead. You can reach Steve at 952.715.3029 or at steven.anseth@aemcpas.com.

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