1. When Financial Management Presented by: Brandon R. Miller, CPA Principal Director, HW Nonprofit Industry Group Director, HW Business Development Group email: millerb@hwco.com Ohio Society of Association Executives Renaissance Columbus Friday, November 2, 2012 3:00 pm Goes WRONG !

2. When Financial Management Goes Wrong! 2HWCO.com. Howard, Wershbale & Co. What is Financial Management?

3. When Financial Management Goes Wrong! 3HWCO.com. Howard, Wershbale & Co. The managerial activity which is concerned with the planning and controlling of the Association’s financial resources

4. When Financial Management Goes Wrong! 4HWCO.com. Howard, Wershbale & Co. What happens when planning and control is absent?

5. When Financial Management Goes Wrong! 5HWCO.com. Howard, Wershbale & Co. $3.5 trillion of fraud loss Source: 2012 report to the Nations; Association of Certified Fraud Examiners

6. When Financial Management Goes Wrong! 6HWCO.com. Howard, Wershbale & Co. Estimated average loss due to fraud at approximately 5% of revenue Median loss of $140,000 per fraud case More than one-fifth of these cases caused losses of at least $1 million Frauds reported lasted a median of 18 months before being detected Source: 2012 report to the Nations; Association of Certified Fraud Examiners

7. When Financial Management Goes Wrong! 7HWCO.com. Howard, Wershbale & Co. Source: 2012 report to the Nations; Association of Certified Fraud Examiners More likely to be detected by a TIP than by any other method Tip43% Management review14% Internal audit14% Accident7% Account reconciliation5% Document examination4% External audit3%

8. When Financial Management Goes Wrong! 8HWCO.com. Howard, Wershbale & Co. Source: 2012 report to the Nations; Association of Certified Fraud Examiners More likely to be detected by a TIP than by any other method Notified by police3% Surveillance / monitoring2% Confession1% IT controls1% Other3%

9. When Financial Management Goes Wrong! 9HWCO.com. Howard, Wershbale & Co. Smallest entities suffered the largest median losses Nearly half of victims do not recover any losses they suffer due to fraud Source of 2012 report to the Nations; Association of Certified Fraud Examiners

10. When Financial Management Goes Wrong! 10HWCO.com. Howard, Wershbale & Co. Perpetrators: 87% of perpetrators have never been charged 6% had prior convictions 6% charged but not convicted 1% other Source of 2012 report to the Nations; Association of Certified Fraud Examiners

11. Ingredients for Fraud 11 Opportunity Justification Incentive

12. When Financial Management Goes Wrong! 12HWCO.com. Howard, Wershbale & Co. Ingredient 1 - Incentive: Financial pressures Change in life situation Unexpected crisis

13. When Financial Management Goes Wrong! 13HWCO.com. Howard, Wershbale & Co. Ingredient 2 - Opportunity: Lack of control / oversight Common internal control weaknesses Incompatible duties performed by one individual to save $s Use of signature stamp Use of corporate credit cards Reliance on overly-dedicated, overly- conscientious and overly-trusted employee Management override ability

14. When Financial Management Goes Wrong! 14HWCO.com. Howard, Wershbale & Co. Ingredient 3 - Justification: Ends justify the means Everybody is doing it Just “borrowing” No worse than the waste and abuse I see here every day Management does not care!

15. When Financial Management Goes Wrong! 15HWCO.com. Howard, Wershbale & Co. Solutions

16. When Financial Management Goes Wrong! 16HWCO.com. Howard, Wershbale & Co. Ask yourself … Where is my association at risk? What assets are most subject to misappropriation? What can reasonably go wrong?

17. When Financial Management Goes Wrong! 17HWCO.com. Howard, Wershbale & Co. Every business needs a system of corporate procedures designed to… Safeguard assets Prevent fraud Maintain accuracy and reliability of accounting data Promote operational efficiency

18. When Financial Management Goes Wrong! 18HWCO.com. Howard, Wershbale & Co. Implement Strong Internal Controls

19. When Financial Management Goes Wrong! 19HWCO.com. Howard, Wershbale & Co. Two types: Preventative: Controls designed to discourage errors and irregularities Detective: Controls designed to identify an error or irregularity after it has occurred

20. When Financial Management Goes Wrong! 20HWCO.com. Howard, Wershbale & Co. Internal controls should be specific to your association Consider the size and complexity of your association Easy to follow and administer Become part of the culture

21. When Financial Management Goes Wrong! 21HWCO.com. Howard, Wershbale & Co. Management sets the tone of: Integrity Honesty Ethical conduct

22. When Financial Management Goes Wrong! 22HWCO.com. Howard, Wershbale & Co. At least Ten Steps to improve your association’s financial accountability (handout)

23. When Financial Management Goes Wrong! 23HWCO.com. Howard, Wershbale & Co. Other easily implemented controls: W-2s are reviewed prior to issuance Obtain bonding / employee dishonesty coverage Require annual vacations with all assignments performed by someone else during the vacation period Cross-train employees Implement formal written antifraud and dishonesty policy (statement: “fraud will not be tolerated”)

24. When Financial Management Goes Wrong! 24HWCO.com. Howard, Wershbale & Co. Red Flag Reporting Red Flag Reporting is a simple, yet highly effective program designed to educate and empower your employees with tools to detect and report unethical behavior www.redflagreporting.com

25. When Financial Management Goes Wrong! 25HWCO.com. Howard, Wershbale & Co. Positive Pay

26. Brandon R. Miller, CPA Principal Director, HW Nonprofit Group Director, HW Business Development Group Howard, Wershbale & Co. 460 Polaris Parkway, Ste. 300 Westerville, OH 43082 614.540.5540 23240 Chagrin Blvd., Ste. 700 Cleveland, OH 44122 216.831.1200 millerb@hwco.com www.hwco.com 26 Thank You! HWCO.com. Howard, Wershbale & Co.