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Sunday, January 17, 2010

Internal Controls: I've Always Wondered About the Wisdom of This Practice. . . .

Many of the tzedakah collections for the poor in Eretz Yisrael and America come with a list of endorsements from many well known Rabbinic figures. The tzedakah organization also asks you to send you donation to the home address of one of those Rabbis. You can send your Rabbi S of Lakewood or Rabbi B of Brooklyn. Or you can send it to Rabbi E or Rabbi S in Eretz Yisrael.

Since these are not the organizations I tend to donate too, I haven't paid much attention to this practice, but always thought it odd that known Rabbis with very busy schedules are being asked to actually handle funds, and presumably some accounting. Additionally, friends of mine who donate to such causes complain that their checks do not get cashed for many months, if at all which leads me to believe that the system is an organizational mess.

Internal controls is an area I'm very familiar with having documented procedures and lead audit teams and follow-up visits to ensure tight internal controls, so allow me to outline some basic proper procedures. The more money an organization deals with, the more internal controls are necessary, especially if workers are dealing with a lot of cash such as in a casino, for example. But these are some sound procedures for small businesses or non-profits.
  • Checks are received and opened in a central location.
  • As soon as envelopes with checks are opened, they are 1. stamped with a 'for deposit only' endorsement, 2. copied, and 3. entered onto a check log which gives name of donor, designation/breakdown of funds (e.g. dues, Rabbi's discretionary, kiddush).
  • All cash and checks should then be put into a locked cabinet or safe and the check log can be passed onto the book keeper. The heavier, more unwieldy the secured storage, the better. Whenever an employee/volunteer leaves the office, the checks and cash should be secured no matter how short the break. (Of course, the number of keys out there and available should be very limited).
  • At the end of the day or anytime a certain amount of funds are on hand, money should be taken to the bank for deposit. A copy of the bank deposit slip should be copied and retained with the copies of checks. The computer record should be numbered, as should the paper record.
  • These records should be placed into a locked file cabinet, as should any records with sensitive information on them. The organization collecting funds needs to protect sensitive donor information.
  • Where a daily deposit is not possible, a policy should be in place regarding how much money can be kept on hand at any one time.
  • The person who performs the bank reconciliation should not have access to cash, only the copies of deposits and checks if necessary. Preferably, the book keeper should use the cash log to enter receipts, but in small business and small non-profits there simply aren't enough people for ideal separation of controls. If money for deposits are being passed onto the book keeper with a cash log, a copy of the cash log should be made before passing on the funds.

The Five Towns Jewish Times is running a horrifying story of theft of tzedakah funds being housed in the home of Rabbi Aaron Leib Shteinman. The theft is reported to have taken place on a Thursday night when the Rabbi stepped out for a meeting. The amount stolen is HUGE: $50,000 in cash and much, much more in checks. Worse yet, the police believe it is an inside job by someone who had a key and knew the Rabbi's schedule. It isn't hard to know the schedules of many of the Rabbis entrusted to receive funds since shiurim, smachot, and other communal gatherings are basically public record.

I would add another worse yet: there are probably thousands of names and bank account numbers now floating around, to say nothing of checks that could be compromised. Donors should get advice from their bank on what to do if they have checks received by the Rabbi.

The article adds that from a halachic standpoint the Rabbi is not liable to repay the $100,000 plus stolen. But I hope that this issue won't end at a halachic pronouncement. The practice of having this type of money sitting around is simply bad practice, regardless of the liability under halacha. With an exception of a reasonable amount of cash given to the Rabbi to distribute, I don't think it great practice to burden Rabbonim with the ins and outs of legalities, accounting, and internal controls. I hope this story won't end here, but will spark a discussion of the wisdom of current practices.

Updated: The YWN report states "There is already an audible criticism from askanim, who wish to understand the wisdom of the decision to leave the Rosh Yeshiva’s home vacant with the realization that there was so much money inside. As per Matzav, "Various askanim have expressed criticism of those responsible for Rav Shteinman’s home for not properly guarding the home of the gadol, especially when he is not home."

The criticism shouldn't be that the home was left vacant, although that was a problem. The criticism should be regarding the severe lack of internal controls over cash *and* checks. The organization(s) that the Rabbi collects funds for should be ensuring that internal controls are strong. Money designated for a tzedakah fund really should not be sent to directly to a personal address. It should land either at the organization's headquarters, a locked PO box, or a locked mailbox. I have no doubt in my mind that most Rabbonim who collect funds are scrupulous in their dealings, but honesty doesn't translate into capacity or know-how. Know-how is teachable. But capacity is a different matter. A Rabbi who must attend to students, communal functions, and emergencies, likely doesn't have the capacity to deal with the ins and outs of proper procedure.

Furthermore, even if the Rabbi's gabbaim had stood guard (and were of impeccable character), a home is a completely inappropriate place to be storing this type of cash. Businesses transport less cash and checks in armed cars to banks that are armed with all sorts of security devices.

From the YWN article "On erev shabbos the Rosh Yeshiva was compelled to deliver the harsh news to those who came as they do monthly, expecting to receive monetary assistance, but compelled to leave empty-handed."

I don't know what the weekly distributions amount to, but if they amount to massive sums of money, there needs to be consideration on this side of the puzzle too. I think it always better to distribute checks rather than cash. However, perhaps there are banking considerations in Israel that I'm not familiar with. Either way, if distributes take place on a non-business day, as above, the money needs to stay secure from the time it leaves the bank until it is distributed. Cash is risky.

On both YWN and Matzav there are comments to the effect that people should be sending money to make up for this loss. These comments are simply out of touch. Where did the money come from? Donors. I keep my tzedakah funds mostly inside of my own community, but I can tell you that if massive amounts of money where stolen from a foundation or tzedakah organization because they were unsecured, I wouldn't be writing a check until I was pretty certain that this would not happen again. But I guess others have a different view of tzedakah, one that they should part with, rather than entrust/invest their funds.


Honestly Frum said...

I was sickened when I read this story. Kupat Ha'Ir and other orgs spend thosands of dollars on glossy mailers yet they cannot afford a safe? Is there not a gabbai tzedakah? This is an inside job, no doubt, yet when I tried to comment as such on a certain frum wesite that was carrying the story my comment was rejected. I guess they are OK denying the truth.

rosie said...

Years ago my husband was going over the canceled checks and found one in his name made out for $5000 to Merrill Lynch of NY. We didn't write the check and in order for the bank to put the money back in our account we had to agree to allow law enforcement to prosecute whoever did it. We agreed even though we knew that there was a possibility that the shiester was Jewish. We also called Merill Lynch to have the account closed that was set up in our name.
Since then, Jewish publications (I think maybe Country Yossi Mag) published articles warning people about giving checks to tzedukah collectors. Another protection is to keep a special checking account strictly for tzedukah and also to use gel ink for writing the check.
Nowadays, people check their bank accounts online daily and would immediately see the monkey business but back then it was not possible. We don't know if the crooks were ever caught and that was the last that we heard of it and we don't even know for sure that it was a result of tzedukah collectors but unless we know the collector personally, we give small amounts of cash.
I agree that those handling large amounts of money should go to the bank daily to make deposits.
I just hope that the crook was not Jewish because that only makes it worse.

Anonymous said...

Rosie: If you itemize, giving cash is not a good idea if you want to deduct your charitable contributions. Of course, some of those tzedakah collectors are not working for organizations that qualify for deductions, but it's something to keep in mind. I like to make all my charitable contributions by check, and not credit card, so that my bank statements with the copies of the cancelled checks will provide the tax records I need all in one place.

Orthonomics said...

Cash can no longer be itemized. That change in the code is fairly recently. Just a point of information.

rosie-the crime happened in Israel, in Bnei Brak to be exact. It will, more likely than not, be "one of us" sad as that is.

Anonymous said...

I remember a "shaliach" coming to my house to collect tzedakah, he was waiting for us to get home in my driveway. He showed my husband post dated checks that others had written so that we would write them also, so he did not have to come back again. Of course, we did not write any checks to him. I always wondered why anyone would give a stranger post dated checks.

Lion of Zion said...

" I like to make all my charitable contributions by check, and not credit card, so that my bank statements with the copies of the cancelled checks will provide the tax records I need all in one place."

credit card statements don't serve the same purpose?

rosie said...

We don't give large donations to door to door collectors so the small amount of cash does not amount to much. We don't get too many collectors because we give our tzedukah to causes we choose and the small amount that we give them does not make our house too popular to them. We do give nice checks to those collectors that we know. If I was going to give the bulk of my tzedukah at the door, I would put it in a separate account.

Anonymous said...

Lion: I assume credit card statements serve the same purpose, but SL probably knows. I just prefer to use my check register and bank statements for my records for charitable donations. I pay all my regular bills on line, so about 90% of my checks are donations.

Orthonomics said...

Credit cards statements work too as documentation.

Shevy said...

Okay, there is no way any Rabbi or organization should be keeping $50,000 in *cash* on the premises. While it may be necessary to have the proceeds from an event or a bunch of counted pushkes in the office overnight or for a day or so (coins in particular can be very awkward to get to the bank) it shouldn't be for any length of time and they should be locked up all the time. Personally, I can't imagine having more than a couple of thousand temporarily, not $50k!

While you want to get cheques into the bank relatively quickly (so they can earn whatever tiny bit of interest banks are paying nowadays and so the money can go to carry out the organization's projects) they are far less problematic. If they're stamped "for deposit only to the credit of [organization]" it should not be possible for the thief to cash them.

And, once the theft was announced anyone who had sent in a cheque and not had it cashed yet should have gone to their bank and put a stop payment on it, just to be doubly sure. But cash is impossible to identify. That money is just gone. And that's horrendous. What a loss!

As someone who works for a non-profit, I feel compelled to point out that it's not always possible or preferable to make daily deposits. Obviously, if you get a large cheque you make a point of getting to the bank right away, even if it's the only one. However, many organizations have cut back on staff or hours (or were never that big even before the economic downturn) and there just aren't enough hours in the day for staff to deal with everything at once, especially when it may mean closing the office to get to the bank.

Our bank also levies some kind of charge per deposit, so we don't generally deposit just one or two cheques at a time (unless they're for thousands of dollars). Instead they're batched so that they fill up one deposit slip (10 items).

Each cheque in a batch is photocopied 3 or 4 to a page and the copy is attached to whatever other paper trail there is (pledge forms, invoices, RSVP cards, etc.). A computer batch is opened for every deposit batch, named with the number of the deposit slip and must match the deposit slip exactly.

The accountant doesn't handle the physical cash but balances the computer reports each month against the bank statement. Then the auditors come annually.

When you deal with money you have to be detail-oriented! Unfortunately, I don't think all rabbis are necessarily set up that way. They have other strengths and should find trusted people to deal with the financial end if that's not their strong suit.

Honestly Frum said...

A relative of mine once wrote a $20 check to an Israeli organization and $20,000 was cashed against the account in South Africa. That was the last time they ever sent a check to Israel and it taught me a very valuable lesson, unless I know the person and org intimately I do not give them a check.

Batya said...

In Israel they make phone calls, and as soon as I hear the "tone" I say:
"I don't give on the phone."
Most hang up on me. How could I give my credit card info to a voice? But many people do.

Lion of Zion said...


nu, so which tzedekas get the Orthonomics seal of approval?

avid reader said...

oooh, that's a great question!!!

inquiring minds (and readers) want to know!

Dave said...

Was your relative unable to get the charges reversed, based on fraud?

Honestly Frum said...

They were reversed, but that is besides the point (FDIC insured)

rachel q said...

Once a well known organization cashed a check twice, first the original and then a copy. The dissmiss our call and "so what, it's only $15 and it;s tzedakkah" Never saw a dollar from us since (and will likely not see more). It was from a well known and respectable organization so we were very upset.
Now in Israel we simply choose a handful of organizations and have a fixed amount charged on our credit card every month. We feel it's a win-win since we don't have to remember to send, no issues of checks stolen or boing forwarded, and we don't have to pay for the line in our bank statement. And the organization gets a fixed amount monthly without any nagging. Most big organizations have this options

Anonymous said...

Shevy: With Every reputable bank having 24-hour atm's it's a little hard to understand how there can't be a deposit every day or so.

When I was younger, during school I had a series of jobs at stores. Those were in the days before atm's. Whoever closed was responsible for reconciling the drawer and then depositing the cash and checks even after bank hours. The bank gave stores keys to the bank's drop box for that purpose because it was inconceivable a store would just keep the cash and checks overnight.

Anonymous said...

While there may be some benefits to donating via credit card, does anyone know what percentage the credit card company takes as its fee? I don't want 2 or 3% going to visa or mastercard.

Dave said...

So, something I don't understand.

If a charity I donated to tried to steal from me, I wouldn't just call and complain, I'd be talking to whatever law enforcement agency was needed to make sure that they couldn't do it to anyone else.

Mike S. said...

The story explains why he had the cash. He distributes cash to the poor families who need it. One can argue about whether a home is the best place for this type of distribution, or whether direct deposit might be better, although I don't know if that is available. Israeli banks have very inconvenient hours and long processing times, so I can see not distributing by check.

rosie said...

Dave, in our case we agreed that the bank could go to law enforcement because we did not know who the crook was. We did not know if the crook was Jewish or not so we were not directly involved in mesira against a fellow Jew. We simply stated that we did not write the check or open the Merril Lynch account and gave the bank full power to prosecute whomever they found to be responsible. Had we known for sure that it was a Jew, I think we would have had to try to settle it in a Bais Din first. In order to protect others, the rabbonim would have had to circulate warnings not to deal with the unscrupulous individuals.
Unfortunately, people are taking the power away from the rabbonim and going to the authorities about their fellow Jews with disastrous results. Of course we must put a stop to frum (and non-frum) Jews who rob, steal, and embezzle, and we can't just chalk it up to tzedukah but we should not turn it into a mesira-fest.
Mike, wouldn't it have made sense to keep the cash in a home safe? There are also all kinds of fake coke cans or cleaning products with fake bottoms to hide cash in. People could put it in the bottom of the cereal box with the inner packet on top. Bake a cake, stick the money in the middle, and put the cake in the freezer and so forth.

Miami Al said...

Any equivalent of Debit Cards in Israel? $50k in cash just seems like a lot, but if he's helping 100 families with allotments of $500 at a time, that would make sense...

What's frustrating is that you shouldn't have more than a week of cash in the building, and if he is distributing $50k/week, I'm sorry, but that isn't a hobby, that's a huge business for one man and should have some controls and financial measures.

Orthonomics said...

Re: charities I like.

We like to give to charities that distribute funds within our own community. I know the people who run the organizations and a bit about how they help (and sometimes who they help as that is often arranged by a caring friend who rallies other friends to donate to the foundation, not directly to the person, but knowing that the person will be helped). The organizations we donate to often pay bills directly, which I think makes a big difference. These organizations include some local foundations who deal with families behind on rent and utilities, unable to purchase food for weekday or Shabbat, and our local bikur cholim which pays medical bills directly. Of course we give to the shuls we belong to. Because they aren't impersonal organizations, there is often support given to the families try and help them get on their two feet.

Anonymous said...

Mike: If you are running a charity that distributes or collects that much cash, perhaps its irresponsible to not also invest in a very good safe? Giving out that much cash may also not be the best way to give out charity. Pay the family's grocery bill, give gift cards for the grocer, pay the rent for the donees, etc. but handing out big wads of cash on a regular basis ????

Shevy said...

re depositing at bank ATM's

As an organization we don't have an ATM/debit card set up to our bank account that would permit this. And it's not possible to deposit coin via ATM. Most of our cash is in coin form from pushkes and usually totals a few hundred dollars per deposit (have to use a box and a dolly to get it into the bank -- it's heavy). It's also much safer (less risk of being mugged) to be doing this inside a mall during the day rather than outside at night. Randomness also increases safety. If you make a deposit every night on your way home you are more likely to be robbed.

David said...


I don't know in which country you live, but in the US wouldn't the government's good treatment of Jews be reason for us to presume that the government is not in fact corrupt?

We do have the injunction that dina d'malkhutkha dina and the crime which the individual committed is very, very likely to be repeated unless the offender is caught and punished. While the preference for starting with a Beit Din is commendable, wouldn't the safek of identity be sufficient to push you toward going directly to secular authorities?

rosie said...

David: That is a whole can of worms. There are plenty of people who feel that it is harder for an observant Jew to get the same fairness in court and in jail as someone who isn't Jewish. As I said, when our account was hacked, we did report it to the authorities because we did not know who did it. To me that is different from directly reporting a Jew and letting him suffer the consequences at the hands of a secular court. That changes of course if the bais din agrees to go to the secular authorities.

Mike S. said...

Yes, a good safe should have been bought if that much cash was regularly present. But if it was an inside job, as the story hints, that might not have made much difference.

The fake coke can trick surely would have made no difference. Indeed, I'd be surprised if thieves weren't pretty good at spotting them. If you have valuables or securities at home you should put them in a real safe, and make sure it is hard to steal the safe.

Pragmatician said...

I apologize for posting this here but I couldn't find an email address, feel free to delete this comment if you find thus useless but I thought you might enjoy it:

Shidduch resumé:
Yichus: Father is a yeshiva educated day trader who learns two daily sedarim in BMG; has been previously investigated by FBI for fraud but never did any jail time; big baal tzedaka who has been honored by BMG twice; mother is a retired BY teacher; youngest child with four brothers and 11 sisters all living off of the Lakewood General Fund and mechutanim from Brooklyn; other pedigree relatively clean, except for a 4th cousin, once removed who attended YU and is now a successful Ophthalmologist in Teaneck
Parents looking for: solid learner from Brisk or Lakewood with neither a history of college nor foreseeable parnassa plans who will sit in Kollel indefinitely; she is looking for the same; father willing to support 10 years @$75k per year, pending no stays in Otisville
Appearance: dark hair with standard BY hairstyle; 5’4” with dress Size 2 (Mother’s size after her seventh child: Size 8
Shadchan: Mrs. Goldberg of Lakewood (25% commission)
Dating History: has gone out a few times with no measurable success; feedback from Mrs. Goldberg points to her having the charisma of a carrot
Photo: yearbook picture available if requested through Torah channels
K-12: Bais Yaakov of Lakewood
Seminary: BJJ
Post-Seminary: Online program to obtain teaching certificate from Torah Umesorah
Work Experience
1996-1998: Counselor in several backyard camps in Brooklyn and Lakewood
2006-2008: Teacher’s aide in BY of Lakewood
Hanhagos and Opinions Checklist (Based on Interview with Shadchan)
Tehillim: completes Sefer once a week while standing in line at Jewish stores
Mother’s use of Sabbath Mode oven: not any more
Posek: Rav C. Kanievsky or Rav Elyashiv if his line is busy
Internet: only with Torahnet filter on Tati’s business computer
Use of a community Eruv: never (she’s looking for a Brisker, remember?!)
Indian Hair Sheitels: only if on sale
Seat Belt Use: No, unless pulled over by a female Police Officer
Hobbies: reading Artscroll biographies, Yated, Hamodia, and Mishpacha; challah baking; asking shailos to Gedolim about her shidduch difficulties

Dave said...

No wonder there are multiple reports of check fraud by charities being talked about here.

Look at the risks and the rewards:

1. If the fraud isn't detected, they keep the money.

2. If the fraud is detected, some portion of the time "It's tzedakah" works, and they keep the money.

3. If the fraud is detected and they are unable to convince the victim to let them keep the money, or the victim contests the charge in some manner, they either give the money back, or end up before a Bais Din, which can only compel them to give the money back.

They have no risk of criminal penalty, and realistically, the only "penalty" is the same as if they had never tried to steal the money in the first place.

Anonymous said...

Our shul was recently hit in a similar manner. Membership checks were left in the shul's office. Apparently the practice was to leave them there for a few weeks until enough came in from the membership drive and then deposit them all at once. Several tens of thousands in checks were cached at various check cashing places in different states.

The shul went to the authorities and the FBI got involved. Apparently the same people hit several shuls. It was Israeli Jews who had scoped out various shuls looking for tzedaka.