The crime of embezzlement is a serious one that can
harm not just organizations, but also communities. It’s important for an
organization to take preventive measures in the form of fiscal safeguards, so
that embezzlement has very little chance of occurring.
One such case of embezzlement is the one that was
committed by Kala Pearson in McGuireville, AZ, a town in the Beaver Creek
district where I lived from 2008 to 2013.
Kala was a resident of McGuireville. On December
20, 2012, she was arrested for the theft of $33,000 from the Beaver Creek Village Property Owners Association (BCVPOA),
and charged with extortion. Reportedly, she admitted to the theft.1 Kala had been the
organization’s Secretary.
She withdrew money from BCVPOA’s bank
account for personal use that had been pledged to pay for the building of a
bridge over Beaver Creek. The purpose of the bridge proposal was to enable McGuireville
residents to drive across the creek after it flooded. Moreover,
she used the organization’s ATM card to purchase food at local markets for her
own needs.
The news of Kala’s arrest came as a
complete surprise to me, a resident of Rimrock in Beaver Creek, as I’m sure it was
for many other Beaver Creek residents.
I first met Kala in 2009 when I was inducted as a
member of the Beaver Creek Kiwanis Club. Kala and her husband Frank were
also members. She and Frank owned a bed-and-breakfast in McGuireville.
Kala came across to me as a local activist for
community improvement. She was Chairman of the Beaver Creek Regional Council, a
local planning organization. She organized the Ranch House Coalition (RHC) which
purchased and restored the Ranch House Restaurant and Golf Course, two Beaver
Creek landmarks, after the restaurant had fallen into disrepair. The Coalition’s
major objective was to help the district’s economy. She helped organize and was
President of the Beaver Creek Community Development Corporation (BCCDC), a
private non-profit organization formed to develop and manage economic
development projects for the sustainability of the Beaver Creek Community. RHC
was one of those projects.
She led the effort to build the above-mentioned bridge
over Beaver Creek in 2009, the year BCVPOA was incorporated. The road crossing
the creek is the easiest means of access for residents wishing to enter and
leave McGuireville. BCVPOA raised funds for the bridge construction and had the
responsibility for maintaining McGuireville’s roads. A separate fund was established
and maintained for that purpose.
What is remarkable about Kala’s story, in
my opinion, is that she, as a person of color, has had so much influence over
the Beaver Creek, AZ community, which is mostly white. She clearly represents
how far the Black race has come in this country since the era of slavery. Yet
Kala isn’t just an ordinary black person who has been accepted as an equal by
our community. Kala achieved near-celebrity status here in a manner similar
to the way Frederick Douglass became a celebrity in England during the
mid-1840s, albeit on a smaller scale. Douglass was a former slave who gained
his freedom, wrote a best-selling autobiography, and published abolitionist
newspapers. Kala, like Frederick Douglass, has the gift of oratory and has used
it as a powerful weapon to persuade people to join her causes. Or you could say
that she has a talent for monopolizing a discussion and controlling it to her
advantage. She has a keen political sense.
From what Kala told me about her bed-and-breakfast, I
was under the impression that it was doing well and that she was financially
solvent. Thus I couldn’t understand why she stole the money from her own
Property Owners Association. I decided to speak with Ellen, the
President of BCVPOA and a resident of Rimrock, to learn more about why it
happened.
Although we hadn’t met before, Ellen was helpful about
providing the information I was seeking. She said that despite the Coalition’s
success at raising more than $300,000 to purchase the Ranch House and golf
course, it was still short of funds needed to meet expenses. The restoration of
the Ranch House was an enormous undertaking. It was a bigger project than Kala
and other members of the Coalition anticipated.
Kala and her husband Frank weren’t doing as well
financially as I thought. Frank lost his job as a computer technician. Ellen said that she learned that their
bed-and-breakfast was struggling when she read that they applied for a zoning
permit or variance for it, and their application was denied.
One of the first signs that there was wrongdoing on
Kala’s part was when Ellen found out that Kala somehow came up with the money in
August 2012 to pay the Restaurant’s payroll and other expenses. It turned out
that Kala wrote a check for $20,000 from the BCVPOA
and deposited it into the Ranch House Coalition account. Kala wasn’t authorized
by the BCVPOA Board of Directors to take that action, according to Tom, BCVPOA’s Treasurer.
Kala was given access to BCVPOA’s bank account, even though
she was only the organization’s secretary. I asked Tom about it. Apparently
Kala intimidated him into giving her access. He said Kala and his nephew, who
lived in McGuireville, had a dispute over a large rock owned by Kala that was
partly on his nephew’s property. Tom’s nephew asked Kala to move the rock. She
wouldn’t budge, and neither would the rock. Kala then harassed him. Tom knew
that she plays hardball, i.e. that she’s vindictive so for his nephew’s sake he
relinquished access to the organization’s funds to her. Tom didn’t try to
challenge Kala. He didn’t want the hassle.
Kala then managed to obtain a debit card in the POA’s
name from Chase Bank, in which the POA’s funds were deposited, without any
authorization from the other BCVPOA Officers or Directors. Chase Bank simply
accepted Kala’s authorization as an officer of BCVPOA without question.
Ellen admitted to me that neither she nor the other
BCVPOA Officers and Directors thought that Kala would steal from the
organization. They were friendly with Kala and Frank, and they knew about
Kala’s involvement in activities that strengthened the community. There didn’t
appear to be any need to take precautions. Besides, only five checks were paid
from the bridge fund since its inception.
Tom admitted, when I asked him about it, that Kala’s
being black had something to do with the fact that the BCVPOA Board members
trusted her with the organization’s funds.
When I first spoke with Ellen and Tom, they didn’t
think that anything could’ve been done to stop Kala from stealing her
organization’s funds. But then they agreed with me when I suggested that no one
in a position of trust should be allowed unrestricted access to the
organization’s financial assets without having safeguards. These precautions could’ve
been taken to protect even a small organization like BCVPOA from embezzlement
or extortion:
1)
Delegate the responsibility for check
writing and cash transaction processing to no more than three people: the
President, Vice President and Treasurer. The Treasurer should write the checks
and maintain the accounting records. The President and perhaps the Vice
President as well, should sign the checks. This approach results in a proper
separation of responsibility which increases accountability and reduces the
possibility of theft.
In general, a Secretary
shouldn’t be given access to the organization’s bank account. The role of a
Secretary doesn’t include management of the organization’s financial assets.
2)
Do a background check on individuals in
sensitive positions or with considerable responsibility. It should be done not
only when they’re considered for a position, but occasionally after they assume
responsibility as well. This would alert the organization to financial problems
an individual may be having, Kala in this case, that would tempt him or her to
take resources from the organization to reduce their financial stress. For
example, it might have shed light on Kala’s financial situation to learn about
how the organizations she established were doing financially. BCVPOA could also
have found out whether Kala received a salary from BCCDC or RHC.
3)
Arrange to have risk management bonding
coverage for individuals who have direct access to financial assets such as
cash, ATM cards, and checks. This would reimburse the organization in the event
of embezzlement.
4)
Hire an accountant to perform an audit or
review of the organization’s financial records. Preferably, the accountant
should be a CPA to ensure the highest quality of service.
5)
Make sure that your bank doesn’t allow
someone to obtain an ATM card or any other form of access to your bank account
without a corporate resolution officially approved of by the Board of
Directors. For example, when my community’s POA, Montezuma Estates Property
Owners Association, wanted to add a signer to its bank account, our bank,
National Bank of Arizona, required that we provide a copy of the minutes from a
recent Board of Directors meeting showing that the Board voted to approve the
additional signer. If your bank doesn’t have at least a similar policy, take
your banking business elsewhere.
6)
Corporate bylaws and LLC Operating
agreements typically state the rights and powers of shareholders, directors and
officers. As the provisions of these documents are often ignored or forgotten,
it may be sensible for a director, officer or member to be given the
responsibility for monitoring compliance with them.
7)
Don’t use signature stamps for checks.
There’s a potential for misuse, especially if the stamp falls into the wrong
hands. It’s safer to sign the checks with a pen instead. Better yet, avoid
using checks and make payments online whenever you can. This avoids
check-writing fraud, which has become a considerable problem due to the
worsened state of the economy.
8)
Establish limits for ATM and credit cards,
so that individuals may not spend the organization’s money beyond what is
necessary for performance of their duties.
9)
Require that the Board of Directors approve
all significant cash expenditures and new check signers.
10) Checks
written for more than a certain amount should be countersigned by a Director or
Officer. The identity of the counter-signer should be authorized in advance by
the Board of Directors or the President.
11) Document
all transactions involving significant cash receipts and disbursements,
including the authorization of disbursement transactions. For example, a
decision to give an officer check-signing authority could appear in Board
meeting minutes.
12) Reconcile
your bank statement to your checkbook at least monthly. This should be done by
the Treasurer or someone independent of those having access to the funds.
13) Financial
statements should be prepared and reviewed by the Board of Directors on a
regular basis.
14) Have
an accounting policies and procedures manual.
15) Have
an organization chart that clearly defines the scope of each individual’s
responsibilities.
16) Try
to obtain the involvement of as many community members as possible. This would
increase the amount of attention being paid to the organization’s activities,
and discourage a dishonest Officer or staff member from stealing.
Organizations that had adequate safeguards were much
less likely to be the victims of theft or fraud. Yet in small communities like
Beaver Creek, organizations like POAs have taken few if any precautions. They may
not have been aware that they needed to, or they were too trusting of their
friends in management positions, or they were uncomfortable about taking such
measures. In short, they weren’t business-minded enough.
McGuireville’s loss of $33,000 and the feud described
above were just two unfortunate consequences of this crime. Another was the
distrust it engendered within the Beaver Creek community: when I attended a
Ranch House Coalition meeting in January 2013, I heard very little said about
returning the money to its rightful owners.
The rapid manner in which Ellen spoke about
what happened with Kala and the BCVPOA was an indication that she may have felt
some regret in having to press charges against Kala.
Some people believe that Kala deserves to
be excused from punishment due to her contributions to the community’s welfare.
See the blog following the Camp Verde Bugle’s article dated December 24, 2012: http://www.cvbugle.com/main.asp?TypeID=1&ArticleID=36934&SectionID=1&SubSectionID=991&Page=1.
Should leniency be shown to Kala? I believe that if she committed a crime she
should be punished for it, or at least be required to make restitution to BCVPOA.
Ellen agreed with me about that.
1 per
the article in Sedona.biz 12/31/12
