You Don’t
Know Jack:
How to
Avoid Fraud
BY MARGARET M. SWANTON, MBA, CPA, CFE
T hink fraud can’t hap- pen to your association? Jack didn’t think so, either. Jack was an experienced association professional who
had recently been appointed executive director of The Association. The
Association employed a total of 19 and
Jack directly supervised a staff of five
managers, one of whom was the chief
financial officer.
Jack had been with The Associa-
tion less than a year when he discov-
ered the fraud. Jack phoned the bank
requesting the current balance of the
reserve account. He normally got bank
information from the CFO, but the CFO
was in the hospital. Jack expected a
balance of about $300,000 and was
convinced there was an error when the
bank reported that the balance was only
$249.86. A few weeks later, a team of
Certified Fraud Examiners confirmed
Jack’s worst nightmare: The money was
gone. The CFO had written a series of
unauthorized checks to himself over
several months. The Association was
shocked. The CFO had good references
and no history of illegal activity. He
had always produced financial reports
on time and had provided timely and
understandable answers to questions.
Jack’s Mistakes
Although Jack and The Association are
a hypothetical case study, they’re an
amalgamation of many different scenar-
ios and stories — all of them true. Here
are three critical mistakes Jack made
that are repeated every day by countless
association executives like him:
1. Jack did not respond properly to audit findings.
When The Association’s auditors told
him that insufficient segregation of
duties created an internal control weakness, Jack did not take the time to fully
understand what they meant. It wasn’t
deliberate. He had been at The Association only a few weeks and was working
long hours. Being a “go-getter,” he was
already in the middle of selecting the
new computer system and planning
the new program. He simply thought
the auditors’ finding sounded less
pressing than the other tasks on his
plate — especially considering that the
auditors reported the same concerns
the prior year without ill effect. Jack
repeated his predecessor’s response:
Too few employees for segregation of
duties and other control measures were
used. The auditors asked no more ques-
