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Booster Club Embezzlement: Legal Issues, Preventive Strategies

By Lee Green, J.D. on September 12, 2016 hst Print

Betrayal

A well-known observation about breaches of trust, the origin of which has never been conclusively established but is often attributed to Mark Twain, is that the saddest thing about betrayal is that it never comes from an enemy, but rather it always comes from a friend or trusted ally. As a new school year begins and activities of all types launch new seasons, including sports, band, theatre, choir, debate, forensics, academic clubs and other student organizations, booster clubs established to financially support such endeavors will also launch new seasons of fundraising campaigns.

As those philanthropic efforts begin, school administrators and booster club officials need to develop and implement proactive strategies to prevent what has become a problem of increasing dimension nationwide: the misappropriation of club funds by the very individuals entrusted with the moral and fiduciary duties of ensuring that all monies raised are used exclusively to support the education-oriented mission of those organizations.

In recent years, dozens of cases annually have been reported of embezzlement by booster club officials, usually volunteers such as parents or community members who were perceived to be trustworthy and reliable before committing their betrayals of the young people they were pledged to serve. In fact, the antecedent level of unquestioning faith and confidence in those who go on to commit such thefts is almost always cited as a key factor contributing to the lax policies and procedures that provided an opportunity for malfeasance to occur. 

Almost every incident of embezzlement leads to both the criminal prosecution of the perpetrator and a civil lawsuit to recover the misappropriated funds. Yet often, the stolen monies cannot be replaced, resulting in students being deprived of benefits such as the opportunity to travel to compete or perform; to be provided with equipment, instruments or other resources beyond those which the school can afford; to secure financial assistance to mitigate pay-to-participate fees; to receive booster club-provided college scholarships; or to obtain any of the extensive variety of other badly needed forms of support that would have been made possible by the club funds that were stolen.

The following are 10 of the more than 30 cases of booster club embezzlement that have been litigated or reported in just the last year:

• A former school clerk for the Perrysburg (Ohio) Schools was sentenced to 10 years in prison for embezzling over a five-year period more than $800,000 from the high school athletics booster club and from the school – monies he used to support a lavish lifestyle that included a large house, luxury cars, a motorhome, a luxury suite at Ohio State football games, and even gifts to the school’s sports program – a new football stadium scoreboard and baseball facility sound system – donated using some of the very funds he had stolen from the program and school.

• A former treasurer of the Kimberly (Wisconsin) High School athletics booster club pleaded guilty to embezzling more than $60,000 and was sentenced to 60 days in jail followed by two years of probation. Responsible for all aspects of the club’s bookkeeping and banking, including the deposit of cash receipts from fundraising events, before her sentencing she returned $49,000 of the stolen monies, delivered to authorities in pillowcases stuffed with cash. 

• A Santa Paula (California) High School band booster club official pleaded guilty to stealing $22,000 and was sentenced to one year in jail followed by five years of probation.

• The former treasurer of the Strawberry Plains (Tennessee) Carter High School athletics booster club pleaded guilty to embezzling $33,000 from the organization and was sentenced to four years of probation.

• The former president of the Sand Creek (Michigan) High School music program booster club entered a plea deal in exchange for reduced charges related to his theft of $13,000 from the club and was sentenced to 30 days in jail instead of the five-year prison term he might have received.

• The former president of the Edmond (Oklahoma) Santa Fe High School cheer booster club was sentenced to 10 years in prison, with all but 90 days being suspended, for her embezzlement of $14,000 from the club’s bank accounts.

• A former treasurer of Vista Pop Warner Football & Cheer (New York), who pleaded guilty to stealing $114,000 from the organization and was sentenced to one year in jail followed by five years of probation, is also now accused of embezzling more than $6,000 from the Shaker High School All Sport Booster Club by writing and cashing checks made out to cash, with the proceeds then used by her for personal purchases. 

• A former treasurer of the Wheatland (California) High School booster club turned herself in after being accused of stealing more than $15,000 from the organization and in the process emptying the account that was to be used to grant multiple college scholarships to students.

• A former treasurer of the Sammamish (Washington) Skyline High School booster club returned $31,000 of what an initial forensic audit indicates was more than $100,000 stolen from the organization that supports 80 sports and extracurricular activities at the school, with the investigation ongoing by local prosecutors into the full extent of the crime. 

• A former treasurer of the Fullerton (California) Rangers Soccer League, a youth sports nonprofit, was arrested for allegedly embezzling what a forensic audit revealed to be more than $174,000 and was charged with grand theft, money laundering, forgery of official records and income tax evasion.

The Fraud Triangle

Developed by sociologist Donald R. Cressey and now used by criminologists and forensic accountants for understanding the typical circumstances that lead to trusted individuals committing crimes of betrayal, the “fraud triangle” is comprised of three components: 1) opportunity, 2) financial pressure and 3) rationalization.

Opportunity: Persons who embezzle funds tend to be those in positions of opportunity to abuse a position of trust and who believe they have a low risk of getting caught because of weak internal controls, lack of policy enforcement, and their end-to-end authority over cash control and bank accounts. For instance, oftentimes, a sole booster club official is entrusted with the organization’s entire financial process, including the deposit of cash into bank accounts, the issuance of checks to vendors and the reconciliation of all transactions in the club’s books. Opportunity can sway the otherwise honest and policies allowing opportunity create a zone of temptation for the person who might not have under other circumstances devised and carried out an embezzlement scheme.

Financial Pressure: When combined with opportunity, some type of financial burden – real or perceived – is a common incentive for committing fraud. Typical monetary pressures asserted by embezzlers as the reason for their wrongdoing include excessive debt, financial difficulties paying personal bills, excessive credit card obligations resulting from living beyond their means, monetary challenges while going through a divorce or a family financial crisis, or simple greed for an enhanced lifestyle.

Rationalization: Fraudsters typically rationalize to justify their dishonest actions as somehow not being in violation of normative codes of ethical conduct, often by adopting a mindset that they are only borrowing the money, that they will soon repay any diverted funds, that they are taking such a small amount that no one will be harmed, that they have to steal because of financial pressures beyond their control, that their thievery will only be temporary and will end as soon as their financial pressures subside, that they are being dishonest only because they desire to better support their families, or that they are entitled to the money because of their hard work for the organization.

The fraud triangle has become a widely-used tool for law enforcement when conducting criminal investigations and accounting firms when conducting forensic audits. However, its most useful application may be that its three components also can serve as the foundation for organizations of all types, including employers, nonprofits, schools and booster clubs, to develop strategies designed to eliminate or minimize the elements that provide the triangle with its structure and strength – to essentially “break the triangle” – thereby reducing the likelihood of fraudulent activity such as embezzlement being perpetrated in the first place.

Recommendations

In order to break the fraud triangle and minimize the chances of embezzlement by a school official or club officer, booster organizations should consider implementing some basic guidelines and procedures:

• Do not allow one person to handle all of a club’s financial processes. Divide duties between booster club members: separate the responsibility of counting monies from the deposit of those funds into the bank; separate the task of cutting checks to pay vendors from the reconciliation of the booster club’s checkbook; and separate the job of keeping the club’s books from conducting internal audits of those books. Division of labor is one of the most effective strategies for eliminating the opportunity to steal.

• Rotate, on a regular basis, club officers such as president, treasurer and other positions with control over financial processes. Many of the high-dollar cases of embezzlement involving booster clubs are perpetrated by someone who has uninterrupted control over club finances for a multi-year period of time, thereby facilitating an ongoing theft because of the absence of checks and balances on that person’s autonomy. Rotation of duties is another of the most effective strategies for eliminating the opportunity to embezzle.

• Mandate that all monies collected from any fundraising activity immediately be deposited into a bank drop box and that no booster club member is ever to take cash home. Cash controls are of paramount importance in reducing the opportunity to steal; when cash is received, two people should count it and reconciliation paperwork should be signed by each. Never allow one person to have end-to-end control over cash.

• Require two signatures on every check cut to pay a vendor, two endorsements for every withdrawal from or change to a club’s bank account and a “For Deposit Only” stamp to be placed on every received check by someone different than the person who will process the check.

• Booster club boards should, as one of their key functions, create annual budgets and as a group reconcile those budgets on a quarterly or annual basis to closely monitor the in-flow and out-flow of club funds.

• Ensure that appropriate accounting and record-keeping procedures are in place and being adhered to and that all computer files containing the club’s corporate book and financial records are backed up so that they do not exist merely on one club official’s computer.

• Seek the volunteer services of an independent accountant who will donate time as a friend of the organization to conduct periodic audits of the booster club’s books and ensure that proper accounting procedures are adhered to by the club’s treasurer and other officials.

• Purchase fidelity bond insurance with adequate coverage limits to protect against losses from embezzlement. $1 million per occurrence and $2 million aggregate is a commonly recommended standard for booster clubs.

• Ensure that all federal, state and local legal mandates regarding the operation of booster clubs are being followed, including IRS 501(c)(3) nonprofit registration requirements, IRS 501(c)(3) tax return filing mandates, state statutes governing nonprofit incorporation and record-keeping rules, state laws specifically regulating booster clubs and parent-teacher organizations, state agency rules addressing sales and use tax permits, state board of education or state activity association requirements for booster clubs, and school district governance mandates for clubs.

For assistance in developing and implementing proper procedures and monitoring compliance with federal, state and local laws, consider using the services of a booster club support organization such as the National Booster Club Training Council (http://boosterclubs.org/) or Parent Booster USA (http://parentbooster.org/). 