Fraud in the Church: Lessons from ACFE Data

FROM http://blog.managingyourchurch.com -

While preparing recently for a presentation to seminary students, I came across some interesting statistics from the Association of Certified Fraud Examiner’s 2012 Report to the Nations. The information is particularly insightful for church leaders who are focused on minimizing the risks of fraud and embezzlement with church money.

ACFE releases its report every other year. Of note from the latest one:

Between January 2010 and December 2011, ACFE tracked 1,388 cases of “occupational fraud” worldwide:

• Of the cases, 10.4 percent occurred within a not-for-profit organization, up from 9.6 percent in 2010, but down from 14.3 percent in 2008;
• The median theft involved with the cases was $100,000, up from $90,000 in 2010, but down from $109,000 in 2008;
• Of all the cases, 87 percent involved first-time offenders with no prior criminal records.

These details are interesting because they validate several things we consistently observe in the church world:

• At least two to four media headlines nationwide each month involving an arrest or prosecution of a bookkeeper, accountant, or pastor suspected of embezzling from their church.
• An average theft amount of at least $100,000, and usually between $200,000 and $400,000, all stolen over a period of several years.
• A perpetrator who has no prior criminal record. Personal debt, a medical crisis, or the unexpected loss of a spouse’s job creates unexpected pressure, with many rationalizing their acts as “temporary loans” that they intend to repay—but never do. Or, some believe they are underpaid and are “owed” the additional compensation.

This provides three important reminders to church leaders:

1. Remember to consistently evaluate the pay structures of your pastors and staff, and watch for stressful events in their lives that could lead to heavier financial pressures. The 2012-2013 Compensation Handbook for Church Staff can help set fair ranges of pay and benefits. (And, by the way, our latest national church compensation survey is underway—please take it today and receive $15 toward downloadable resources on YourChurchResources.com.)
2. Use internal controls to segregate duties and involve multiple people in all of the various steps involving money—from collections to counting to accounting to bill-paying. Our Essential Guide to Internal Controls for Churches eBook and our Essential Guide to Church Finances both go deeper on how to do this.
3. Don’t underestimate the value of internal and external audits. An external audit involving a qualified, independent outside firm requires time and money. Consider doing one about every three years because it helps ensure no gaps or loopholes have developed over time. Internal audits conducted by church staff and volunteers can be done on the years when an external audit isn’t done; these can simply review policies and procedures in place to make sure everything works right and looks right. Marian Liautaud’s article, “Surviving a Church Financial Audit,” offers additional tips and insights.