Family Connections – A Case Study in Nonprofit Governance

The American-Statesman reports on the closing of Family Connnections, an Austin, Texas nonprofit that provided family-oriented programs supporting children and their parents.  The nonprofit ceased all operations last week due to considerable financial difficulties and a criminal investigation of its recently-suspended executive director.  The executive has been criminally charged for filing fraudulent audits with state governmental agencies overseeing approximately $1 million in funding to the Texas nonprofit from 2006 to 2010.  As Board members and former employees are trying to determine exactly what led to the nonprofit’s collapse, several red flags point to inadequate board governance and a complete lack of internal controls.  First, the executive director had a criminal history about which neither the former executive director nor the board members appear to have known.  Second, the executive director always presented the financial audits to the board, with no board member having ever directly met or dealt with the purported outside auditor. It is only when the Texas state auditor’s office began a routine review of the nonprofit’s finances, including its annual audits, did it become clear that no outside auditor was ever engaged by the nonprofit, thereby leading to the filing of fraudulent reports with the state.  In addition, the executive director was the only employee with access to the nonprofit’s finances and bookkeeping and did not store any accounting records on the office computers but only on a portable drive brought home every evening.  Board members that inquired about additional financial or budgetary information were delayed or given an excuse about the complexity of operations.  As always, in the end, the over 32,000 people served by the nonprofit last year lose most by its closing.

NAM