By Cynthia McMannon

Cynthia McMannon, CMAA, is the Assistant Executive Director for Finance and Human Resources at the Arizona Interscholastic Association. She can be reached at: cmcmannon@aiaonline.org.

For months, your booster club volunteers work toward a funding goal--perhaps a new baseball dugout, or additional weightroom equipment. Little by little, community members open their wallets and add to the coffers until the goal is almost in sight. And then, the money mysteriously disappears. Instead of reporting a success story, the local news media runs headlines about financial mismanagement and potential criminal investigations. Community members wonder whether they should donate again, and they blame the athletic department for failing to safeguard the money.

Embezzlement of booster club funds is a growing problem. Rarely does a week go by without a headline such as "Booster Club Reports Theft," (Topeka Capital-Journal, Kan.), or "Booster Club Ex-Treasurer Indicted for Embezzlement," (Potomac News, Va.). However, no one really knows just how big a problem it is because many times the crime goes unreported and perpetrators are rarely prosecuted. Or what disappears is a small amount of money here and there that no one notices.

But we do know that some common threads run through all the stories. Embezzlement is a crime of opportunity involving a trusted person. And it is generally the result of poor internal financial controls and lack of oversight.

In today's economic climate, athletic departments rely heavily on financial support from booster clubs and can't afford to risk losing these valuable funds. And in the public's mind, safeguarding the money they donate to your booster club is the athletic department's responsibility--regardless of how independently your booster club operates. It is in your best interest to recognize that the theft of booster club funds does occur, and to take appropriate steps to make sure your school isn't the next victim in the headlines.

WHO, WHY, & HOW
To create an effective anti-fraud program, you need to understand the factors that foster embezzlement, including who embezzles and why. Embezzlement is a crime predicated on trust. When someone with direct access to cash occupies a position of great trust, functions with a high level of autonomy, and is not closely supervised, the risk of theft increases.

Could you pick an embezzler out of a crowd? Probably not. The "10-10-80 Rule" states that 10 percent of people will never steal, 10 percent will always steal, and 80 percent will steal given the right opportunity, motivation, or justification. How do you determine which group your booster club members fall into? It's not easy, because people who steal or commit fraud share many characteristics with those who don't. Embezzlers usually don't have antisocial personalities, past criminal records, or sporadic job histories. What they do have in common is that they have attained a level of authority that provides an opportunity to embezzle.

In fact, the embezzler is often the last person you would expect: the volunteer who is highly motivated, valued, and trusted. Personal integrity is the most important factor that keeps a person from embezzling, but someone facing severe financial or personal pressures, given the opportunity, may rationalize that "borrowing" booster club funds isn't really a criminal act, especially since they have every intention of paying the money back "later." Unfortunately, the borrowing continues and later never comes.

How exactly does someone steal from a booster club? Embezzlement schemes run the gamut from simple to elaborate. The easiest way to steal money is to keep cash that has not been recorded (for example, from ticket sales or cash donations). Other easy methods include pocketing money from sales of concession items, stealing wages from nonexistent workers, and submitting receipts for reimbursement of items purchased for personal use.

More elaborate methods include writing booster club checks made out to "cash," withdrawing money from the booster club account, or cashing checks made out to the booster club and keeping the money. Someone may also alter, and then cash, checks made to the booster club, keeping the additional funds; destroy deposit slips and never deposit the money; or deposit only checks when both checks and cash are received.

Other common methods include paying personal bills from booster club funds; copying receipts or invoices and submitting them for payment several times (normally several months after the first receipt is submitted); creating fake invoices on a home computer and fraudulently cashing the payment checks; or ordering additional booster club account checks, using them to write duplicate checks, and then depositing them into a phony booster club account opened by the embezzler.

The trouble is, while fraud cannot succeed without trust, neither can a successful booster club. Booster club members must have a certain degree of autonomy and authority to perform their fundraising activities. The question is, how much leeway should they have?

Striking the right balance between oversight and trust is where an athletic administrator's leadership and management skills come into play. You don't want to risk offending well-intentioned, dedicated volunteers who have proven their trustworthiness over time, and you don't want to ask them to jump through additional hoops that will increase their workload. On the other hand, adhering to appropriate financial procedures and records will not only secure booster club funds, it will also protect booster club members from allegations of fraudulent behavior.

INTERNAL CONTROLS
The first thing you can do to protect your department is to set an example of ethical behavior and create a high expectation of integrity across the board. Fraud prevention research overwhelmingly supports the importance of the appropriate "tone at the top" in preventing people from rationalizing dishonest actions. By creating and maintaining a culture of honesty and accountability, you open channels of communication that help bring questionable conduct to light before it evolves into illegal activities.

The next critical step you can take to protect your booster club from embezzlement is to establish an effective system of internal financial controls. Internal controls safeguard assets by requiring those who handle money to comply with certain procedures, laws, and regulations. These requirements govern how funds will be handled and by whom, what type of financial records will be kept, and how records will be reviewed and audited.

To start establishing internal controls, you'll need to review your booster club's current financial procedures. Once you see what's already in place, you'll be able to determine what, if any, additional financial controls should be added. As part of this process, you will begin to see where the likely risks and vulnerabilities to theft are in your particular organization.

When developing appropriate internal controls for your booster club, there are several key areas to consider:

Division of labor. One person should not be responsible for all the money handling. Use different people to receive and log cash and checks, prepare and make deposits, issue checks, and reconcile bank accounts. For example, designate someone other than the treasurer to review bank statements and reconciliations. Have them compare these records with monthly financial records to identify any suspicious transactions. Rotate these tasks periodically. If the number of available individuals makes proper separation of duties impossible, a second person (perhaps the booster club president) should review financial records.

Handling Checks. Each check should be stamped "For Deposit Only" upon its receipt, and invoices and supporting data should be reviewed before checks are signed. Booster rules should require two signatures on all checks or on checks above a specified amount. Only pre-numbered checks should be used, and no one should sign blank checks. Do not permit use of a signature stamp.

Booster club officials should review the documentation for each check prior to signing it, and they should not sign checks without an invoice, original receipt, or adequate backup. Officials should also attach invoices or receipts to a duplicate copy of the check issued for payment and review canceled checks and endorsements for anything suspicious. They must account for every check, including voided or canceled checks, and secure checks, petty cash, and deposits in a locked location.

Making Deposits. The person responsible for handling deposits should create a separate deposit slip for each business day and deposit funds as quickly as possible after receiving them. For consistency, he or she should compare deposit slips to a daily log of receipts, check them against monthly bank statements, and retain deposit slips with the log sheets or attach them to monthly bank statements.

Caring for cash. When cash is received, two people should count it and sign reconciliation forms. Frequently rotate the individuals who count cash. Use a numbered receipt book that provides a duplicate copy for the booster club's records. Do not permit people who receive or count cash to create the deposit slip or take the deposit to the bank. Limit access to cash, which obviously should never be left unattended.

Require reporting. A monthly financial report should be generated and presented to the booster club board of directors and to the athletic administration. Periodic reports should be given to all booster club members.

Audit Annually. The simplest form of audit is a compilation. This includes preparation of financial statements showing revenues and expenses based upon bank statements, receipts, and checks.

With a bit more effort, you can conduct a review. In addition to the details stated above, a review involves an in-depth discussion with those involved in financial transactions along with a comparison of current and prior years' account activities.

The most comprehensive analysis is an actual audit where, in addition to the items included in a compilation and review, supporting documentation is examined, confirmation of year-end account balances is obtained from banks, internal control procedures are reviewed, and the risk of embezzlement or fraud based upon current internal controls is assessed.

When deciding which type of audit best suits your booster club, consider the level of financial activity, completeness of available documentation, number of questionable items, and availability of individuals with whom to review financial records. In general, use a compilation for annual amounts less than $20,000, a review for $20,000 to $50,000, and an audit for amounts above $50,000.

ADDITIONAL SAFEGUARDS
Once you have effective internal controls in place, there are a few more steps you can take to protect your club and your department. First, require a criminal background check for every booster club member who will fill a financially responsible position or who will have direct contact with money (perhaps above a specified amount). This should include officers, and certainly the treasurer. Background checks can be provided by a local private investigator or possibly as part of the school's background check program.

Because booster club members usually do not have a background in finance, providing them with ongoing training is also crucial. Cursory training can be enough for members who will have limited exposure to cash, but more in-depth training is needed for officers and members with greater financial responsibility.

Conduct a mandatory annual training meeting for all booster club members. Use the time not only to review your expectations, procedures, and internal controls, but also to enlist everyone's help in ensuring adherence to the booster club's fraud-prevention program. When new members join mid-year, provide the training for them as well, and make sure each volunteer has a copy of the booster club's financial internal control procedures.

In your discussions with booster club members, emphasize that each of them must take their fiduciary responsibilities very seriously, that strict adherence to financial guidelines is ultimately in their own best interest, and that members should feel free to discuss questions or concerns with you at any time. Your goal is an active, engaged membership with shared financial accountability.

Lastly, consider purchasing additional insurance to protect both the school district and the booster club from liability resulting from embezzlement. In addition to comprehensive general liability coverage naming the school as an "additional insured," many districts buy fidelity bond coverage (a commercial crime policy) to protect booster club funds in the event they are embezzled, stolen, or fraudulently altered. Fidelity bonds allow you to recover all or part of money lost from fraud. Choose individual bonds for the treasurer or custodian of funds or a blanket bond that covers all booster club members. But be aware that neither type of bond will cover funds which are lost, not stolen, and claims will be denied if the conditions of the bond policy are not followed--another reason everyone must follow the rules.

THE POLITICS OF CHANGE
Instituting some of the above suggestions--especially establishing internal control procedures--can require booster club members to operate in new ways. This can be a delicate process, especially if your booster club has functioned with a high degree of autonomy for a long time.

To smooth the transition, the best strategy is to convince the club officers to institute these controls on their own. Invite club leaders to a financial procedures workshop in which the advantages of good internal controls are reviewed. Stress the protection these measures offer officers and others involved in financial transactions, preventing theft as well as allegations of impropriety. Make it clear that these procedures are the same as those used by the athletic department and school, and offer to assist them in developing a plan tailored to their specific circumstances.

When introducing new internal controls, it's important to avoid giving the impression that you don't trust the booster club to conduct its own affairs. One graceful way to implement a workshop is to include it on the agenda at the conclusion of your school's annual audit, when you review recommendations made by an outside auditor. Another approach is to include a discussion as part of a pre- or post-season meeting about tournament financial procedures.

The goal is to encourage booster club officers to create effective oversight procedures on their own. In the worst-case scenario, where diplomacy just doesn't work and booster club officers refuse to adapt, be prepared to tell boosters that they must follow required financial procedures or lose their affiliation with your school or team.

IF THEFT OCCURS
What should you do if, despite your best efforts, you suspect theft within your booster club? To start, proceed slowly and do not jump to conclusions, because a false accusation could result in serious civil liability. After voicing your concerns to your principal or the appropriate administrator, begin an immediate investigation by closely following district procedures. If deemed appropriate, secure all paperwork and limit club members' access to funds.

In the event theft is verified, follow district policies. This may include obtaining legal advice and notifying the bonding company and appropriate law enforcement authorities.

Of course, it's much better never to get to that point. As an athletic administrator, you can reduce the risk of booster club theft through a combination of prevention, deterrence, and oversight. Implementing the advice contained in this article will significantly reduce your chances of being the subject of the next embezzlement horror story.

Sidebar: NO FREE LUNCH
Booster club members work hard at what can be a thankless job, and they aren't paid. So when is it okay for them to use some of the dollars they raise on themselves?

That question came up this spring in the Summit Hill School District in Frankfort, Ill. According to a story by the Sun-Times News Group, the Athletic Booster Organization raises more than $40,000 a year to support athletic and physical education programs, and when they meet for lunch or dinner, the club sometimes picks up the tab.

A community member raised questions about the appropriateness of such spending, and the allegations have led to a costly nightmare. The boosters face a Freedom of Information Act request for all of their financial records for the past four years.

To avoid such a scenario, I suggest establishing clear guidelines ahead of time specifying what spending is okay and what is not. For example, you could institute a rule that when booster club members work at an all-day event, funds can be used for food and beverages for them. But another rule might state that when the group meets at a restaurant, members must pay for their own meals.

With each decision, ask whether the expenditure in question is important enough to use funds that would otherwise directly benefit kids. Also remember that the people who donate the money expect it to be used for the purpose stated. Clearly specifying when funds will be used for booster club members creates transparency, avoids confusion, and gives donors more reasons to trust the club.