If you have kids who play sports, you have likely paid a not-insignificant amount of money to local not-for-profit athletic organizations over the years. These same organizations probably also receive subsidies from their respective municipal governments and maybe provincial and/or federal governments as well. Some of these sports organizations take in a lot of money, especially at registration time. Further, most of those who work for these teams (coaches, etc.) have full-time jobs and do the organization’s work in their leisure time as unpaid volunteers. Since most of the ’employees’ of these organizations are unpaid, where does all of that money go?
CBC Report Finds Incidences of Fraud and Embezzlement in Several Youth Sports Organizations
The CBC recently reported major embezzlements by officials who manage some of these amateur sports organizations. In most cases, it has been someone high-ranking in the organization, such as the treasurer or the president. Someone who has sole access to cheques or cash and no one checking up on them.
The CBC has found these embezzlement cases throughout Canada. The largest case involved the Ontario Minor Hockey Association, which lost approximately $2.4 million when the Treasurer, a 16-year employee, embezzled funds to pay for a gambling and shopping addiction. What is even more surprising is that a lot of these embezzlements have not been reported to the police. Those in leadership positions in these organizations often do not want to make it public that something like this could happen on their watch.
Tips for Improving Internal Controls
If you are a parent paying money to these groups on a regular basis, or someone who oversees a non-profit sports league, you will be asking what can be done to really minimize the chances of something like this occurring. The first item to think about is ensuring there is a diverse leadership team who will hold one another accountable. Ensure that the Board doesn’t become too stagnant by bringing in new members or sharing or rotating duties. This will allow for improved separation of the Board’s duties as well as enhancing the internal controls – it’s harder to hide illegal activities when there are several sets of eyes on the finances. Any organization, whether it’s a for-profit or a non-profit, needs internal controls over cash. Another one of these controls is making sure that the Treasurer doesn’t perform the bank reconciliation.
What is a bank reconciliation?
A bank reconciliation is a month-end process of making sure that the bank statement ending balance agrees with the cash account balance. If the organization’s bank statement shows transactions that are not recorded in its general ledger bank account, the reason must be determined. The usual items are bank charges and fees but if the bank statement shows a payment to a supplier or an unknown individual and this transaction has not been recorded in the organization’s cash records, it must be investigated. With the ease of electronic banking available today, performing a bank reconciliation is not a difficult or onerous task.
Cheque-Signing Authority & Regular Reporting
There are several other bank account internal control activities. First, two signatures should be required for every cheque issued by the organization. The most likely two are the Treasurer and the President. In this situation and all situations, the Board should be provided with regular financial reports including a Balance Sheet, Statement of Revenue and Expenses and Cash Flow Statement. This allows the Board to review the finances in detail and ask questions about high expenditures or low cash balances. Adding to all this, there must be a rule that no cheque can be made out to Cash, so that all funds out can be properly tracked.
Potential Signs of a Problem
Certain conditions may make it more likely that there could be an issue. For example, if the Treasurer has recently been laid off from their job, or is otherwise experiencing financial difficulties in their personal life. Under these circumstances, the temptation to “borrow” from the sports organization may increase for someone with access to the coffers. There are several signs that a person may be taking money to supplement lost wages or an addiction issue, and Board members should be aware of the signs that may raise a red flag, such as:
- Missing petty cash or cheques made out to ‘Cash’
- Double billing
- Missing financial data or reports
- Vendors complaining about late or non-payment
- Those with access to the finances may have lifestyle indicators that seem above their means (fancy cars, expensive vacations, etc.)
All these items could indicate the possibility of embezzlement and should trigger further investigation.
Contact ESS CPAs LLP in Burlington for Advice on Improving Your Organization’s Internal Controls
A lot of these mentioned internal controls are applicable for small businesses and non-profits across the board; not just youth sports groups. If you own a business or manage a non-profit and would like advice on how to manage finances with an eye to preventing and identifying incidents of fraud, we can help. Please contact the Chartered Professional Accountants at ESS CPAs LLP to get more advice on how to improve your organization’s internal controls. Contact us online or call us at 905-517-2297.