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Keeping Temptation at Bay

Well-Considered Policies Help Protect an Investment Club’s Holdings

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In the news recently was an article about multiple California campaign and nonprofit organizations becoming the victims of alleged embezzlement by a shared treasurer. A common theme was the treasurer being “trusted implicitly” and having sole access to the accounts.

Although I haven’t heard of this being a problem in investment clubs, it’s still good to have policies that minimize the risk. Here are a few suggestions for policies I’ve seen clubs take to address this issue.

•    Make account statements regularly available to at least one member other than the treasurer. Many
brokerages and banks will send duplicate statements. There’s likely an extra charge for this service. Check whether this can be done electronically or online.
•    Split the treasurer’s duties so that the same person doesn’t do data entry and money handling.
•    Audit the club’s books on a regular schedule.
•    Allow club members reasonable access to club financial records.

Your club will need to decide which controls to use and how to implement them. For example, my club is nearly 20 years old and the treasurer has never had the authority to sign checks.
Our partnership agreement includes a section allowing members access to the club’s financial records. Once a year, I also print a copy of account statements to be distributed at the meeting. Members who have been authorized to make trades have access to our brokerage statement online.
As a longtime club treasurer, and as a treasurer for other organizations, I don’t find these procedures insulting to my integrity.  That isn’t an excuse to prevent implementing prudent controls.

Russell Malley is the Club Accounting Adviser for ICLUBcentral.

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