TACKLING THE FRAUD PROBLEM IN YOUTH SPORTS

No one wants to think about being the victim of fraud and embezzlement, but it frequently happens. It may be sad to think about, but even youth sports organizations are not exempt from fraudsters. Youth sports have grown exponentially in the past several years and this growth has made some of the customers you may be working with in the sporting goods industry, or as a coach or volunteer, an attractive target for fraud and embezzlement.

Here are just a few examples of youth sports fraud:

• A New Jersey soccer club director redirected funds estimated at about $100,000 to self-created accounts with similar names to the club

• A California youth baseball treasurer embezzled more than $30,000 for personal use for almost two years

• An Ohio youth baseball league treasurer embezzled approximately $175,000 for personal purchases that included a Disney vacation.

The Center for Fraud Prevention, whose mission is to help youth sports associations fight theft and embezzlement, compiled more than 350 cases totaling more than $20 million lost over a 5-to-8 year time period to raise awareness of the problem. Erik Carrozza, the President of the non-profit center and a CPA, said he became the treasurer for a local youth sports organization about 10 years ago that processed about 3,000 registrations a year and had an operating budget of approximately $500,000.

BY JENNY SHAFFER NSGA COMPTROLLER Erik Carrozza

“When I joined, there was one person holding everything and not a lot of controls in place,” Carrozza said.

“I brought in another individual as co-treasurer and I realized others struggle with embezzlement because they didn’t have adequate controls in place. People didn’t realize how prevalent this issue was.”

Carrozza said there are tactics that can help limit exposure to these schemes. By taking the time to implement even a few simple controls, the impact and frequency of these instances may be reduced.

The methods used for embezzling funds are not overly sophisticated, according to Carrozza. Rather, the fraud occurs because there were not appropriate checks and balances in place. In many cases, a single person was responsible for the finances of the sports program with little-to-no oversight of their processes. The head finance position often is held by a volunteer, so there is a reluctance to question suspicious behavior because replacements for these positions can be tough to find. Along the same lines, youth sports are community based and the finance person is often a very trusted, well-known member of the same community.

“Having more than one person involved in the finance function is critical,” Carrozza said. “The reality is when individuals take advantage of their position in youth sports they are trusted individuals. Another common theme when the crime is uncovered, for a large part, the community is shocked.”

To limit fraud and the chances of embezzlement, some best practices suggested by Carrozza are:

• Ensure check registers and cleared payments are reviewed in a timely manner by someone other than the person responsible for the finances. This needs to be more than just a review of general ledger detail as that can be altered. For example, reviewing a scanned image from the bank of a cleared check is a better control. This scan would include ensuring checks are not made out to “Cash” or to the person writing the checks.

• A review of credit card statements with supporting documentation by someone other than the person responsible for the finances to ensure that debit or credit cards are not being used for personal reasons. Verify that current spending is in line with past patterns and current expectations or understand the reason for the change if not.

• Perform bank reconciliations at least monthly and have appropriate individuals review this information in a detailed manner.

Another good control to have in place is creating term limits on the governing board if a youth sports program has one. Fraud can be discovered when a new member gets involved and begins to ask questions. Having term limits on the board ensures others can gain access to financial information. Finally, as parents or local businesses, be aware of what your money is going toward and ask questions if things don’t seem right.

Without proper controls in place, it can be very difficult to determine if fraud is occurring and tough to even gather evidence, especially if the suspicion is coming from outside those who are responsible for oversight (e.g. a parent). Depending on the policies and procedures in place, the person responsible for the finances may not be obligated to share detailed information if questioned. Short of running for a position on the board (if there is one and if there are term limits to allow this) it is not easy to bring to light.

“I get calls from concerned parents and coaches regularly asking, ‘What can we do to gain access to financials because we’re pretty sure someone is skimming from the organization,’” Carrozza said.

“It can be very frustrating. You feel terrible that parents are reaching out that something shady is happening and they don’t have any way to get the financial information.”

The impact of embezzlement can be devasting. Because of the community atmosphere around youth sports, there can be extreme shock when it occurs. It can cast doubt on the program management and take away the focus from what is really important – providing an opportunity for kids to play sports.

From a financial perspective, it is difficult to get lost funds back especially if cash is involved. Recovering from embezzlement of funds could cause delays in purchasing new equipment or uniforms. In some instances, the program may not even be able to recover at all from the financial impact of lost funds and be forced to shut down.

“Some organizations basically go out of business because they couldn’t rebound,” Carrozza said. “You read about other situations where an organization is able to recover through generous donations from a business or with the help of a professional athlete. But you see some leagues that are irreparably harmed from it.”

Unfortunately, embezzlement of funds in youth sports is occurring and cannot be ignored. Having written financial protocols and taking small measures to ensure there are appropriate checks and balances could go a long way in reducing the chance of being a victim of a financial disaster.