Who’s Auditing The Auditors?

Credit where it is due, Peter Hansen of NJPAC posted a link on the Performing Arts Administrator’s group on LinkedIn about the £2.3 million judgment entered against former London Philharmonic Orchestra (LPO) General Manager Cameron Poole for financially defrauding that organization.

Even though it was supposed to take 4 people to issue a check, Poole was able to take advantage of operational distractions to perform all the required functions himself, included forging countersignatures. The executive director, Tim Walker, admits some negligence on his part, but is amazed that not only did he and the board not catch it, but the auditors from Deloitte missed it on three separate audits. LPO is currently pursuing a negligence suit against Deloitte.

It raises the question of whether you can really be certain you have proper controls and diligence in place. Deloitte missed, or at least didn’t comment on something that became apparent to Poole’s successor in a couple weeks. Four of the biggest accounting firms in the country never made a sound about the suspicious nature manner in which Bernie Madoff financial reports were generated. (An entirely separate issue from the strangely superior returns his fund was generating.)

One would think that after Arthur Andersen’s accounting arm lost credibility following the Enron scandal, reducing the Big Five accounting firms to the Big Four, greater attention would be paid. But I think people may attribute more competence and honesty to organizations of great size and prestige than is warranted. Even on the non-profit front, I was aware of a number of scandals in the United Way, but I had no idea that there has been large scale mismanagement and embezzlement at four or five locations and alleged smaller scale fraud at over 20 others. One of the Spanish members of the LinkedIn group cited a case similar to LPO’s at Barcelona’s Orfeó-Palau de la Musica Catalana where the general manager embezzled millions of euros (some stories I have seen claim 23 million in over 30 years).

The piece I linked to above about the United Way claims “The nonprofit world has accepted that multi-million embezzlements are a cost of doing business.” As much as I am dismayed by the idea that making great efforts at due diligence may not guarantee security, I would hope no one hiring me would do so assuming there was a good chance I will make off with some of the money.

There is a price for lack of scrutiny when people begin to lose faith in you. About a year ago, there was a piece in the Washington Post about 21 Washington DC area non-profits withdrawing from the local United Way, which had been the subject of one of the larger scandals, in favor of another emerging charitable organization.

I am encouraged by the news that it didn’t take long for Poole’s replacement at the LPO to notice something was strange. It means that misappropriations can be spotted with a little healthy scrutiny that makes no personal judgments about the individual holding the books when you ask to see the raw data rather than the summary reports.

Still, most of us don’t have three weeks to pour over ledgers sorting through it all. So the real question becomes, how do you know you can trust your auditor to be meticulous enough on your behalf? I am sure I could find editorials about how the big firms are so big and so motivated to process as many audits in a year as possible, companies aren’t getting the competence and effort they deserve. I am also pretty sure that laziness and incompetence afflicts the small operations as well as the big ones.

There was an argument back during the Enron scandal that rotating accounting firms would help avoid the conflicts of interest that develop over a long term relationship and cause auditors to look the other way. That was countered by the idea that is wastes a lot of time and money when you have to get a new auditor up to speed about the way your business runs.

I am pretty much on the side of rotating. I don’t think most arts organizations and non-profits in general are so big that it will take too much longer to explain their operations to a new group every few years. That way you avoid any conflicts of interest and lack of rigor.

Info You Can Use: Cell Phone Donations

If you have been excited by the prospect of using cell phones as a mode of donation after hearing of the success in raising funds for Haiti, you may want to do some research and calculations. The cell phone and credit card companies have gone out of their way to make it easy to donate for Haiti relief and waived most of the ancillary costs.

You on the other hand, probably won’t be so lucky.

Hawaii Public Radio had a short piece covering a meeting sponsored by a local foundation on the subject of cell phone donations this week. (link downloads mp3 file. This link if first doesn’t work. Look for raising funds..social media) A representative from a cell phone company talked about the costs to set something like this up- $500 set up fee, $400 monthly fee and a a .35 per transaction fee.

With costs like that, it would likely only be worth your while if you had a large group of people already giving that you wanted to provide an alternative mode for donating.

Now that said, I can easily see the costs coming down as those for whom it makes sense use the service. Once all those involved with the transactions create more efficient processes, the service may become more affordable. Someone is likely to invent an app for the iPhone or Facebook which will facilitate the whole exchange and two years from now it will be a $2 billion business in $25 average increments.

Another observation that is made in the story related to social media was in regard to who one puts in charge of coordinating it. One speaker cautioned against putting the youngest person in the office in charge of social media just because they understand the software the best of anyone. “They know the tools, but they don’t understand the sophistication of your message and they don’t always understand the intangible qualities…of how you actually communicate with people out there.”

I have a suspicion this is something a lot of people have already thought to themselves but were afraid to say it for fear of showing just how out of touch with social media and its great power they are. It just takes a visit to sites like Failbooking.com to see some pretty poor choices when using Facebook. Though to be fair, I sort of question the wisdom of this water safety ad by Royal Life Saving Society Australia.

Only 15 Minutes Of Fame For Tragedies?

Lucy Bernholz at Philanthropy 2173 makes some fascinating reflections on the impact of technology on giving vis a vis the Haitian earthquake relief efforts.

I confess a huge amount of skepticism when I had first heard that one could donate to the relief effort via text messaging on your cell phones. I wondered how much the phone companies were profiting off this and how big a cut the donation processors would be taking. Apparently I wasn’t the only one because according to Bernholz, the phone companies have waived the fees under pressure of public opinion.

She also talks about the possibility that those who received funds may be under greater scrutiny. I remember after Hurricane Katrina, many people were horrified to learn how great a percentage of their donations were going to administrative overhead at the Red Cross and similar organizations. The Red Cross has shown some transparency by tweeting near real time updates of the climbing donation totals. Bernholz suggests that Twitter may become the platform where this is not only reported–but where people also question what has been done with the money.

The suggestion that really grabbed my attention was her idea that technology might cause/allow people to acquire “Donor Attention Deficit Disorder”

That people all over the world can be so instantly engaged and moved to donate is certainly a good thing. But does it come with costs?

On Wednesday, January 13, #Haiti was a trending topic on Twitter all day (a measure of what the millions of tweets are discussing). By Thursday, January 14, it was gone. Does the ability to give instantly and painlessly (mobile donors won’t even see a charge for the gift until they get their next phone bill) make it extra easy to give and move on? Will “donor fatigue” be replaced by “donor A.D.D.?”

The concept that even tragedies have only 15 minutes of fame before people move on is pretty chilling. If the best tactic for successful fund raising is providing people with an opportunity to give at the point where the emotional appeal is greatest, it is going to be increasingly difficult to sustain any sort of long term support. And how long will it be before people become inured to solicitations of calculated to concentrate a great deal of emotional response in a short span. Such an approach might stunt efforts to gather support for true tragedies.

It probably doesn’t help that we are told to just give money. Granted, in this case, it just isn’t practical to become physically involved. Much less so that after Hurricane Katrina. There is also something of an underlying message that once you have given, you no longer need to be engaged with the problem. All you are being asked to do is just give money and you can accomplish that by doing something you enjoy doing everyday–text a number.

How Much Am I Bid For This Sweaty Towel?

When it comes to fund raising, I imagine there have been quite a few people who have looked around their buildings wondering how much they could get for various objects laying around.

They probably aren’t the first, but Philadelphia radio station, WXPN has started an auction section on part of their website in the hopes of shortening their fund raising drives. They offer a mix of objects from access to special seating sections at concerts and dinners with artists to old stuff they found laying around their former building.

There are times I have joked about selling the towels artists have used on eBay to raise funds, but sent them all to the washing machine. I wonder if I have been too shortsighted….

If you are like me, your problem isn’t that you don’t have plenty of interesting stuff to auction off. It’s that your budget is so tight, you have recycled the stuff so many times you can’t decide which significant performance to claim it belongs to.

In fact, it may have more value to schools teaching art restoration. Students can practice removing successive layers of paint to analyze the techniques used. Most of the stuff you have is probably good for at least five-ten semesters of instruction before they reach the original finish. This is probably the way to go anyway since the multiple attempts to repair the objects over the years have endowed it with a good three pounds extra in glue and screws and a strange tilt when placed on a flat surface.

But in all seriousness, it is something to consider to raise some extra funds. Certainly, it can’t become a veritable business unto itself for your organization or else the IRS may be stopping by to review your non-profit status. I know there are a few theatres around that rent/sell costume pieces just before Halloween to clear out their storage areas and generate a little income.

XPN’s auction site seems to be created via AuctionAnything.com. Services like theirs can provide a more professional environment than something like eBay can. However, given the cost, it would likely only be worth it over the long term, (as opposed to single use around a special event), if you intended to offer things consistently and had someone tasked to attend to the arrangements.