Upper Valley fraud case underscores need for internal financial controls

As an Upper Valley nonprofit recovers from a fraud scheme in which a former executive spent its money for personal use, New Hampshire nonprofit leaders shared fundamental points to consider when it comes to charity finance.

The case at hand involved past director Kyle Fisher stealing almost $240,000 of Lebanon-based Listen Community Services’ funds to use in a Massachusetts casino. The organization serves about 32 communities across New Hampshire and Vermont, offering resources like community dinners and payments to vulnerable residents.

Fisher — a former Grantham resident — joined Listen as a volunteer in 2013 and was promoted to various roles until being appointed executive director in 2016, according to the Valley News. He pled guilty to a wire fraud charge involving embezzlement of Listen funds in Concord U.S. District Court on Feb. 27. Fisher is scheduled for sentencing June 11.

Citing a news release from the Department of Justice (DOJ) on the scheme and guilty plea, current Listen leadership provided a brief emailed statement to NH Business Review on April 19 addressing the fraud and their organization’s recovery.

“Despite many internal financial controls, Mr. Fisher sought out loopholes for the short time that he could until he was caught,” the statement read. “It was an abuse of trust and authority. We were able to recoup funds from insurance, and the diligence of the authorities has made it possible for us to stay focused on our mission of serving the Upper Valley community.”

The statement did not specify what controls were in place, but the DOJ stated in its release that Fisher had full access to Listen’s financial accounts, including a bank account and a PayPal account used to collect donations.

By contrast, Granite United Way CEO Patrick Tufts said staff of his nonprofit have “very little” oversight over donated funds.

“Restricted donations, by purpose, go where the donor wants them to go, so we have no discretion over that,” Tufts said. “On unrestricted dollars, United Way, for the last 100 years, has leveraged and utilized volunteers that we call community impact volunteers who work at the local level.”

Those volunteers are presented with the total amount of unrestricted dollars on hand, who in turn file requests for proposal describing the funds available for use in local community projects, he said.

For those local decisions, the requests and funds are reviewed by about 20 people locally who collectively made a recommendation to Granite United Way’s board of directors. The board then determines how to invest, and by the projects’ financing, Tufts estimates about 75 people will have been part of the process.

Many nonprofits that are more regional and local likely can’t match these numbers — Granite United Way exists statewide, and its leadership alone consists of 51 staff members and 32 people on its board of directors.

But Kathleen Reardon, CEO of the New Hampshire Center for Nonprofits, says any nonprofit can stand to keep its financial controls consistent and contemporary, reviewing them annually so they remain in touch with how businesses are currently operating and to ensure boards and staff understand them.

Some organizations may have adjusted their controls in 2020, Reardon noted as an example, when virtually the entire nonprofit sector and financial positions went remote.

“Normally something that had been (approved) having dual signatures on a check maybe wasn’t possible when everyone was working remotely,” she said. “Maybe the way to mitigate that issue was to do an approval differently than a physical check.”

No matter the means of approval, Reardon stressed that no single individual should be given full access to receiving and depositing mail, let alone the financial accounts in a nonprofit.

“In a larger organization, you have different staff that might be receiving that bank statement and reconciling it,” she said. “In a smaller organization, you might have a nonprofit board member (being part of) receiving of opening the bank statement so that you have dual controls and don’t have it all concentrated on one person.”

Tufts, meanwhile, noted that background checks are also key to the finances of a nonprofit and ensuring they’re in good hands.

“We’re blessed to have board members from very reputable accounting firms and law offices,” he said. “So, we’ll frequently leverage them (because) they have acumen that we may or may not have at United Way in terms of professional competencies and ethics credentials.”

Those checks and application reviews look for qualities in prospective hires like continuity of employment, consistency and a broad base of skills relevant to the position being filled. Granite United Way’s financial staff have held long-term roles in the nonprofit, with those ranging from staff having five years in the organization to its chief financial officer working there since its founding over 20 years ago. That matters because “you don’t want to have a lot of turnover in your finance departments,” Tufts said. “That can lead to some complex problems.”

Those problems can be magnified for nonprofits and charities more than they are with for-profit companies, Reardon noted.

“There is a concern both by the nonprofit and the public at large as those dollars are being diverted from a charitable effort, and so that is more upsetting than other frauds,” she said. “Oftentimes for-profit businesses don’t have the same requirements to disclose that kind of thing.”

Reardon says she’s found “mixed reports on the efficacy” of background checks for financial positions at nonprofits, but she does see a benefit in organizations having a code of conduct — a statement laying out the nonprofit’s ethics and hiring process and its financial transparency.

“Nonprofits really hold ourselves to high standards of accountability, and we are required to be more transparent by virtue of our nonprofit status that we file — the (Form) 990 tax return,” she said. “If you’re over a certain threshold, you have a 990 that is publicly available.”

Even with that public accountability, Reardon urges nonprofits to have a clear whistleblower policy implemented within the organization so warnings can be made internally before potential misuse of funds gets out of hand.

“Most fraud cases or embezzlement very frequently come to light because an employee tips or provides information about that,” Reardon said. “It’s important so that an individual who sees some inappropriate activity, or thinks they may see it knows that there will be no retaliation for them (whistleblowing).”