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What is new board’s responsibility for missing money?

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What is new board’s responsibility for missing money?

I am one of a group of local residents who were asked to take over a non-functioning community church to revive it. The prior board of three older women had kept the corporation alive by occasionally renting out the facility and had about $20,000 in the bank. Due to illness, they grudgingly handed over legal control of the corporation as of August 1, by holding a special board/member meeting, appointing a new board, and then resigning. However, one of them withdrew about $10,000 a few days before the hand-over, and then withdrew the rest immediately thereafter. Is this an issue for the local police, the bank, or should we call the IRS?  What is our fiduciary responsibility for the money? We don't actually need the money, but it should be used to help restore the property.

The IRS isn’t likely to do anything.  The bank will probably say that the director had signature authority over the account (but it is worth assuring yourself that she did).  The local police, the county prosecutor, or the state Attorney General may be interested if you can legitimately claim that the money was stolen. 

You may need to talk to the director before you make that allegation.  See if there is any documentation to justify the withdrawal.  If there is no acceptable explanation, you can try to get it back.  (I assume that the corporation had no insurance that would make you whole from a misappropriation.)  The other former directors may be able to help.  If she isn’t willing to give the money back, you can sue to recover if she has assets.  It is not a big number to make litigation economical, but it would make the charge public, which the director might want to avoid.  You can also report to the members what has happened, watching out that you don’t defame her.  (As a church, I also assume that you don’t file a Form 990 on which you would need to report the loss.)

If getting a recovery of some, if not all, of the money is not practical, I don’t think you have an obligation to throw good time and money after bad.  I think your responsibility is fulfilled by making a reasonable effort to recover what you can.

Tuesday, October 10, 2023

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