Within the confines of the law, the duty of a Board Member is always to the organisation.

When the Advocacy organisation needed a new Finance Manager, Glenda was the perfect fit. She was a well-known advocate in the disability field, and had a teenage son with a disability. She was qualified as a bookkeeper, and had three years experience with a SME. As a single mum, she was the only income earner.

The appointment worked out well. Her friendly personality fitted with the office culture, her work was efficient and accurate, and the Board were pleased with her monthly reports. The extra costs of her son’s therapy ($600 a month was mentioned at her interview) were an ongoing problem for her. As a Board supportive of our employees, we were pleased that her job gave her a method of addressing those costs.

Our auditor Tom had been with us for six years – good governance would suggest it was time for a change. We had always had a clean bill of health, but at the end of this financial year Tom raised an unusual query. On the first day of three consecutive months there had been a $600 cash withdrawal which was not accounted for. On the fifteenth day of each month- which was the day staff were paid – there had been a $600 unaccounted for cash deposit. So at the end of the month the books balanced. Tom detailed this in his auditors report, which came to the Board.

Our CEO was also puzzled. She had asked Glenda, who had no explanation.

As a member of the Audit and Finance Committee I was worried. The discrepancy had occurred three times, and it was always the same amount. I thought we might have an ongoing problem.

I asked our Treasurer to keep a lookout, and she told me that whilst it did not show in the July figures, it did in August, and had risen to $620.

Our Treasurer, who had become friends with Glenda as they worked on the financial reports, spoke to her again, explaining that we would have to investigate further, perhaps at a cost to the organisation. During that conversation, Glenda admitted that she had been “borrowing” the money. She had not been able to afford her son’s therapy when the payment was due at the end of each month, so had taken the cash, but always repaid it on pay day.

How should we, as a Board, deal with this issue?

We had lost no money. We had a committed and diligent employee, whose work was not in doubt, and whose support of the organisation, and its philosophy, was not in question. Her son needed the therapy, and as parents we empathised with her determination that he should continue to have it. In fact, had Glenda come to any one of us on the Board, we would probably have lent her the money.

But, by using the organisation’s funds in this way, even temporarily, Glenda had breached our trust.

The Australian Institute of Company Directors http://www.companydirectors.com.au have established ten Good Governance Principles. Let’s look at the ones to consider in making our decision.

Principle 4. Risk- Recognition and Management- The systems we had in place worked. The Auditor found the problem and reported it to us. The CEO did not solve the problem, but she had followed up.

Principle 6. Board Effectiveness- Having an Audit and Finance Committee meant that particular members of the Board gave the matter their continued attention.

Principle 7. Integrity and Accountability- An employee, with responsibility for financial matters, had breached the Board and the organisation’s trust in the area of money handling, not once but four times. Our fiduciary duty to the organisation required us to take some action.

Principle 9. Culture and Ethics- The Board sought to lead with a culture of openness and honesty. We also wanted to demonstrate our support for employees, particularly in the area of disability.

It was with regret that we, as Directors, putting our fiduciary duty to the organisation first, asked Glenda for her resignation. It was one of the hardest Boardroom decisions I have had to make.

What would you have done?

Graeme Innes has been a Company Director for more than thirty years, and still finds new learnings in the pain of tough decisions.

• Social justice