I have direct evidence that my executive director is misappropriating funds from the charity where I work. What can I do about her behaviour without risking my job?

This is a difficult situation. I think you mean the misappropriation is ongoing. That means there is past behaviour to deal with as well as preventive action for the future.

The latter issue was addressed in the September 2008 column on preventing fraud, so I will concentrate on the first issue now. Unfortunately, I have little comfort for you as it is very difficult to address unethical behaviour by the chief staff officer without a risk of harm to your career. And I don’t know enough about the situation to suggest the least risky course; I can only suggest questions for you to think about. Your answers should help you manage the risk as well as possible. Many others have found themselves in this situation, unfortunately, and dealt with it successfully.

Step 1: Evaluate your evidence

Step back and take a hard look at your evidence. Is it unambiguous or might an innocent explanation be reasonably offered? Are you certain there is no innocent explanation, such a board approval to withdraw funds to cover expenses during approved travel? Will your ED be able to come up with a believable, even if untrue, explanation? How will you counter that explanation if it happens? Do you think you can safely ask the ED about the unusual costs?

Do you have documents or just what you have heard her say? Can you get hold of original documents, so it is clear you are not offering copies or electronic versions that could have been altered? Do you just have hearsay evidence — what has someone else heard or witnessed? No matter how credible you think that informant is, they will have to come forward and speak for themselves, not let you speak for them.

If your evidence holds up, you must act or you become complicit. You should neither act in haste nor procrastinate.

Step 2: Seek out good advice

If at all possible, get advice before revealing yourself as the source — for that matter, avoid revealing yourself as the source throughout if you can.

Before contacting anyone, think about who will likely support the truth and who might want to support the ED rather than hearing the truth. Assume no one is there to support you, other than moral support from family and friends. And remember that if your allegations are made public, you could be subject to libel or slander suits, not just the loss of a job, so limit who you talk to.

Who will want to support the ED? Her supporters will not be limited to friends on the board, as those she was part of recruiting may also have some loyalty to her. If she is a recent hire, those on the hiring committee will not be happy to discover they made a mistake. Is your organization’s lawyer neutral? Your external auditor? Your board chair? Your audit chair? Your treasurer? Or are they friends and supporters of the ED too? Some insecure EDs are careful to surround themselves with friends and yes-men and women.

There are online forums at other web sites such as CharityChannel that let you post anonymously, so you can discuss the kind of evidence you have and get advice from others in the sector. You can reveal more details than you have given me. You will have to judge for yourself which advice is good advice, as with anything on the Internet.

If an audit is approaching, your auditor may be very willing to listen to some tips on what to check for. Say nothing before confirming that your call will be treated as confidential. If there is an Audit Committee, that chair may also be interested in advising the auditor what to check for. You then do not have to be the one to bring the documents forward, or inform the board. You might be suspected but there will be no proof, if those you speak to keep their promise of confidentiality.

Most nonprofits will not incur the cost of a special audit, and especially not of engaging forensic auditors, who are very expensive. A large nonprofit might though; it would depend on the amount of money at risk. Would such an auditor find the evidence or is it well disguised or missing? I once knew of misappropriation by a departed ED, but the file folders were empty: records had been destroyed or deliberately not kept; there was nothing that could be taken to court. It was all hearsay and not worth pursuing, though of course new financial controls were immediately put in place.

If you have an ethics reporting system, such as an external hot line for whistle-blowing, then you should be able to use it fully anonymously for both advice and reporting. If your system is based on internal people, you will have to assess your level of confidence in using the system. Both are difficult if the evidence you have is something only you could have obtained, as is often the case in small organizations. You will find the July 2006 column on whistle-blowing directly relevant.

You can also look outside your organization. The Public Trustee of Ontario, and the counterpart in other provinces or states, has an interest in misuse of charitable funds. Someone there might be willing to have a conversation without you naming the organization, to give advice on how to proceed.

Step 3: Consider your role and contacts

Who in the organization already knows and respects you? To whom have you demonstrated your integrity, work ethics, passion for the mission and good judgment? Who can you easily talk to without raising suspicions? If you are the CFO, you will already be working with the audit committee and/or treasurer, and the external auditor. You have easy access; you will also be the first suspect.

If you take board minutes, you are already known to all the board members, especially the chair and secretary. If you book travel and handle board expense claims, then you too are known. If you have had little or no contact with the board, you may want to confide in someone who already has the trust and respect of the board.

If your role involves communicating with donors, grant-makers and others, think about how to act while you are deciding how to handle the situation. Do not lie to protect the ED. False reports to grantors about how monies were spent are a type of lie; prepare honest reports that reflect the match to the actual use of funds. I do not mean you should highlight misuse. That would be a form of public whistle-blowing which would be inappropriate at this interim stage while you are working things out. You may have to refer inquiries to the ED or the treasurer.

Step 4: Coming forward

When you are ready to act, remember that your purpose is to have all the organization’s resources used towards the mission. Your purpose should not be to get public acclaim for your bravery, or get the ED fired, though both could happen. You want the organization’s resources and reputation protected. Which option best serves the mission?

It is likely that an internal option such as the ethics reporting system, or the board chair in its absence, is your best route. Someone in authority can act on the problem, then tell supporters and funders that the organization has taken steps to end misuse and recover the monies. It’s much better than having supporters – or worse, board members — learn of the issue through the media or police reports.

External reporting should not be considered until all internal efforts have failed. If it’s bad enough to go public after internal efforts fail, then go to the regulator or police, not the media. Note that it is unlikely the police will act without hard and unambiguous evidence; they will not want to do a forensic audit either. Also, understand that your board will be very upset that you made the situation public, either before they were ready to deal with it or after they had decided not to deal with the situation at all.

Again, if you are worried about your job, and you have every right to be, then use methods such as anonymous internal whistle-blowing or having the external auditor raise the concerns as much as you can.

Quitting is not usually a good answer, as the organization’s resources are even more vulnerable with you gone. However, you do not want to keep working for an unethical boss, and even worse for an unethical organization that will not act on her thefts. It is reasonable for you to actively job hunt in case the board does not take appropriate action, or the ED takes reprisal actions against you. Once out, you may feel freer to speak up to the board members.

Thank you for being ethical enough to care about the misappropriation, and being willing to act. I hope your board does the right thing.

Since 1992, Jane Garthson has dedicated her consulting and training business to creating better futures for our communities and organizations through values-based leadership. She is a respected international voice on governance, strategic thinking and ethics. Jane can be reached at jane@garthsonleadership.ca.

Because nonprofit organizations are formed to do good does not mean they are always good in their own practices. Send us your ethical questions dealing with volunteers, staff, clients, donors, funders, sponsors, and more. Please identify yourself and your organization so we know the questions come from within the sector. No identifying information will appear in this column.

To submit a dilemma for a future column, or to comment on a previous one, please contact editor@charityvillage.com. For paid professional advice about an urgent or complex situation, contact Jane directly.

Disclaimer: This article is for information purposes only. It is not intended to be legal advice. You should not act or abstain from acting based upon such information without first consulting a legal professional.

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