What’s Going On?

Volunteers of America Southwest California (“VOASC”) was dismantled and lost assets. After a whistleblower and auditor reported numerous fraudulent activities and poor practices, VOASC ended up in a private lawsuit and legal action with the county.

Why I Might Care

NPOs play significant roles in U.S. society. But no matter how large or beloved the NPO, poor practices, fraud, and/or poor governance can result in undesired consequences for the NPO, its personnel, and its board. This writing examines some addressable problems that ended an NPO.

Some Deets

Volunteers of America (“VOA”) is a faith-based organization that has grown to “one of the nation’s largest, established comprehensive human services organizations with 16,000 mission-driven professionals, dedicated to helping those in need rebuild their lives and reach their full potential.” VOA maintains an affiliate business model. This business model allows VOA to be a national non-profit that provides localized support through local affiliates that receive administrative and management services from the national organization. 

By 2021, grossing $20M/year the local affiliate VOASC had grown to become “one of San Diego’s largest charities serving marginalized populations.” In 2018 and 2019, a finance employee (the whistleblower) discovered discrepancies and misgivings in the accounting. Eventually, VOASC removed the whistleblower’s accounting accesses, then transferred him from the finance position, and finally terminated. This led to a whistleblower lawsuit.

Simultaneously, the county auditor was completing audits because VOASC was a recipient of county funds. The county auditor identified inconsistencies and discrepancies in the accounting. The county auditor informed the board of “problematic spending habits.”

It was alleged and purported by the whistleblower and county auditor that VOASC was “misusing public funds and committing potential fraud.” Among other things, many things came to light, VOASC was doing business with at least 1 board member, knew of fraudulent payments to employee-formed companies, was fraudulently charging multiple agencies, lacked internal controls, lacked payment authorization procedures, and maintained extremely flawed bookkeeping.

As a result, county officials demanded the return of funds in excess of $6.5M for misgivings between 2018 and 2020. Eventually, the CEO (implicated in allegations) exited, the board was disbanded (whether civil or criminal liability was sought is unclear), and an agreement was reached requiring VOASC to turnover two buildings to the county and sell another. It is unclear the result of the whistleblowing action.

What Do I Think?

Well, honestly, this is messy (even worse, there was another incident with the Los Angeles affiliate for a multi-million-dollar sum). But this seems to have been easily avoidable. Below are a few things I believe could’ve prevented this downfall.

1. Enforced Strong Corporate Policies. It is great to have policies in place. However, the policies must be clear and custom to the needs of the organization. And the workforce and board should be educated on applicable policies. VOASC could have benefited from comprehensive company and board Conflict of Interest policies that defined conflicts for VOASC (based on VOASC and government funding sources), reporting procedures, decision-making procedures, and disclosure requirements and procedures. 
2. Strong Internal Controls. Managing the finances can be difficult for the best of us. It is critical to establish procedures to ensure, among other things, financial accuracy, transparency, remediation, reporting, and healthy operations. This is especially true for NPOs that receive any governmental funding. VOASC did not maintain effective internal controls, it could have benefited from developing controls with a knowledgeable team, including an independent outside accounting or auditing firm.
3. Comprehensive Board Selection, Onboarding, & Training. Solid boards begin with the thoughtful and intentional selection of board members. Friends are nice, but friends with a needed skill are necessary. Board members who are team players and willing to express concern or differing opinions are even better. Once selected, board members should receive dedicated education on the strategy, operations, and applicable policies of the organization. And where possible boards should receive trainings. Trainings to remind them of their legal and ethical duties, to refresh them on the purpose of the board, and to equip for effective oversight. VOASC’s board was either disengaged, lacking in its duties, or both. Whatever the case, the board could have been restructured or revived (through some of the above practices) to help prevent the end of VOASC. 
4. Consistent Board Diligence. Boards are impotent if they do not engage in constant diligence. This means reviewing reports, finances, and plans at each meeting. This means engaging in productive dialogue to issue spot, educating oneself to cause information to become actionable, and helping meet goals. The board of VOASC clearly lacked in financial diligence. Reviewing financials more closely, requesting additional insights (if absent), withholding approvals, requiring audits all could have identified issues. 
5. Encouraged Transparency. Transparency is critical in any highly regulated company. Though possibly not desirable, reasonable transparency can prevent major problems from occurring or molehill problems from becoming mountain problems. Transparency begins with the overall understanding of the business identity that then informs the people strategy, which is ultimately implemented and refined overtime. Each company should define and nurture its own transparency. With VOASC, it is apparent that transparency was not a tenant of the company as it ultimately terminated and was sued by a tenured employee – the whistleblower (2 whistleblowers to be exact). Without understanding more about its strategy, belief systems, and operations, it is difficult to determine what could have been done differently.