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May treasurer commingle charity’s funds in own account?

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May treasurer commingle charity’s funds in own account?

I am in a local chapter of a national charitable corporation formed more than 100 years ago to promote patriotism.  The treasurer of the group has kept the organization's funds in a sub-account of his own account.  He says he did this to avoid the banking charge.  Is he commingling the sub-account funds with his other sub-account funds?  

The answer to your direct question is “Yes.”  The further question is: what are the consequences of the commingling?

This is the kind of thing that a group of individuals would do when they are just beginning to set up an organization and haven’t incorporated or obtained an Employer Identification Number.  Somebody offers to hold the money in a personal account until the organization can get its own account.  The person accounts for the funds and transfers what hasn’t been spent to the organization’s account as soon as it is set up.  Everyone is happy.  But the arrangement usually doesn’t continue beyond its need.

Here you have a local chapter of a century old organization.  The national probably has some rules on this question and may be able to offer guidance.  But even if the national provides no help, it is not a good idea to continue the arrangement.  The treasurer is not likely to go to jail so long as there is clear accounting for the organization’s money and nothing is amiss, but the chapter is really vulnerable if it doesn’t control its own money.  And if the treasurer gets hit by the proverbial bus, it may be a significant and costly mess to unwind.

The board should thank the treasurer and ask him to transfer the money.  They can treat the small charge on the account as a form of insurance for independence.  If the money isn’t transferred, then the organization has a real problem.  But let’s assume that your treasurer has acted in good faith and will realize that the chapter needs to act like a real organization.

Tuesday, August 30, 2022

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