Church Thieves

FROM http://www.transformedblog.com/2013/07/03/church-thieves/

Her last day on the job should not have involved handcuffs, but that’s the way it played out.  The church secretary for a tall steeple church a small town was put in the backseat of the police car and taken away.  Her crime? Stealing from the church.
By some accounts, one in three churches has suffered from embezzlement, with the average take exceeding $100,000.  The results can be devastating: churches can close for lack of funds, staff can go unpaid, huge debt can be incurred, trust can be lost and the perpetrators can go to jail.
I have the good fortune of being married to a Certified Public Accountant who has served on the finance team for several churches and who has specialized in auditing non-profits while working for a public accounting firm.  After a string of recent church embezzlement cases, she and I discussed the problem over dinner one evening.  From our conversation, I picked up six issues related to preventing church embezzlement.

Beware of “The Fraud Triangle”  Accountants and other finance people coined this term to describe the conditions that can lead a person to steal.  The triangle consists of opportunity, motive, and rationalization.  We’ll look at opportunity later, so let’s give attention to the other two.  Motive involves the person’s need for money.  The embezzler could be motivated to steal by any number of real or perceived needs: a desire to buy more than he can afford, a debt he’s incurred, a gambling or drug addiction, family members who are in need, and the list can go on.  Be on the lookout for needs among those who deal with your church’s finances.  Also, learn to spot the rationalization that can lead to theft.  Most fraud starts small, as a loan to cover a need and with the intent to pay back the loan. The rationalization is that it’s not theft, it’s a quick loan.  When no one notices and the loan doesn’t cover the need fully, more money is taken.  What started small becomes too large to pay back and the rationalization can shift to “I deserve more than they pay me,” or “Obviously the church can afford it since no one has noticed,” or “I’m in too deep to turn back.”

Tracing Cash from Offering to Statement  Churches set themselves up for fraud by failing to create and/or manage adequate systems for receiving funds.  To prevent theft of funds during the receiving process, churches need checks, balances and oversight along the four phases of receiving funds:

Collecting the offering in such a way that no one person is left alone with funds.  Though it doesn’t typically result in huge or ongoing losses, the easiest time for theft to occur is prior to the offering being counted.

Counting the offering and completing and signing a cash receipt log.  Of course, two or more people should be involved at this stage.

Completing and signing the bank deposit slip, which should match the cash receipt log.  Someone who does not sign the cash receipt log should make the bank deposit.
Verifying the bank deposit receipt matches the deposit slip and the cash receipt log.  Someone other than the one who made the deposit should confirm alignment with these three records.
Finally, an actual bank statement should reflect the information on the cash receipt log, the deposit slip, and the deposit receipt.  Someone who is not directly involved in any of the other phases should give oversight to the process by using the record for each step in order to trace cash from plate to bank account.

Bank Robbery  Theft of funds can occur before the deposit, but it can also happen after funds make their way to the bank.  In fact, this is where the more significant thefts occur.  Poor financial oversight leaves the door open to funds being withdrawn inappropriately and without notice.  Simple steps can prevent such theft.  For instance, the check writer and signer should never be the same person.  Nor should the one writing the checks have access to the signor’s electronic signature or signature stamp.  Also, three is a magic number when it comes to proper oversight: one person writes checks, another person signs the checks, and at least one more person (someone who cannot write checks, sign checks or otherwise spend money) has access to all records related to checks, withdrawals, debit and credit purchases.

Trust Primary Sources  When a financial statement or report is prepared for a board or staff meeting, someone other than the preparer should verify the accuracy of the statements based on an actual bank statement, preferably the online statement (paper statements can be altered to misrepresent the church’s financial condition).  I know of one church who trusted reports from an excel spreadsheet for nearly two years before checks started bouncing and they realized that the spreadsheet was a total fabrication.  When they looked at the bank statements, they saw almost no correspondence between the bank statement and the reports they’d been given.  Leaders without the ability to spend money or change records should have access to primary sources, which they check against reports often.

Ignorance Is No Excuse  Too many ministry leaders treat finances as the crawl space of the Lord’s house.  They know the financial stuff is needed (though many would call it a necessary evil), but when it comes to sound accounting they aren’t sure what it is, what it does, or how it works.  So the financial systems are relegated to a back office where all is assumed to be well (until it’s not).  Out of sight and out of mind results in a murky environment that can breed fraudulent behavior.  There is often a thin line between delegating (responsibly appointing others to fulfill a duty for which they are qualified and which you oversee) and abdicating (irresponsibly handing something over to another simply because you don’t want to deal with it).  Pastors and other church leaders most certainly should delegate much of the financial aspects of church life, but ultimately they are responsible for having the right people and systems in place and they are responsible for being stewards of tithes, offerings and other resources.

Not Urgent Until It Is  Churches are not required to be audited and most choose not to subject themselves to the hassle and costs associated with professional scrutiny that could prevent or catch theft.  Churches also tend to rely on under-trained, under-qualified and/or overworked personnel to handle the financial matters.  These are practices aimed at giving finances the minimal attention needed to get by.  And such an approach seems to work, until it doesn’t.  Putting the right systems in place is never an urgent matter until it’s too late.  Wise leaders take care of important matters before they become urgent.

If your church has not experienced fraud or embezzlement, it’s likely only a matter of time until you do.  But if you pay attention and are proactive you can minimize the damage and perhaps even prevent theft altogether.  I’d encourage you to have a conversation with your church leadership to look for weak spots and to improve the overall health of your finance and accounting systems.