Something to Consider…

We previously asked church leaders about the following situation:

All of your church’s finances are handled by the church treasurer. The counting and recording of the offering, and the printing and signing of checks are all done by the same person..

How likely are you to be embezzled?

  1. Not likely, our treasurer is highly trusted by the congregation.
  2. No way, we have done a background check on our treasurer.
  3. I don’t think so—our treasurer is a Certified Public Accountant.
  4. Could happen, our treasurer has been experiencing some personal financial stress lately.
  5. Not likely because a CPA firm performs an audit periodically.

Lifeway Research conducted a poll of 1,000 Protestant pastors. One of the questions that they asked was, Do you know if your church has ever been embezzled? Nine percent answered, yes. The remaining 91 percent answered, Not that I know of.

Perhaps a better question would have been, If your church was being embezzled, would you know? Often pastors, who rarely have much if any financial or accounting training or experience, would not know. Instead they rely on handing over financial policies and procedures to others. Or they count on an audit of the church’s finances to uncover any fraud going on. Does this sound like the situation at your church? If so, we suggest that you read on.

Few if any churches would even think of allowing one person to exclusively handle all aspects of the church’s financial duties. Many, instead, would have two individuals count the offering every Sunday. Possibly someone other than the counters would be responsible for making the bank deposit. Another individual would then prepare any payments the church was obligated to make. The church might even go so far as to have a different individual sign checks.

While better than a one person does it all situation, there are still some potential problems that could open the door to funds getting embezzled. For example, has a church run background and credit checks on all the individuals involved in dealing with church funds? Are those checks repeated at least every three years? You may reply that the church has done background checks, but ask, What is the need for a credit check?

A credit check could provide insight into whether or not an individual is under any financial stress. Since a person’s financial situation can vary over time due to things such as change in job, health or family status, periodic re-checking is highly recommended.

Processing Church Income

The Sunday offering may be getting counted by two individuals, but are they unrelated? A married couple serving as offering counters should have a third person in the room working alongside them. The counters should not always be the same two or three people every week. Also, counters should be part of a trusted team that rotates, working different Sundays. This is not because you don’t trust them, but instead, you want to protect them from possible accusations of stealing that might arise.

Also, ask yourself if money comes into the church in ways other than through the offering plate or online giving. Perhaps parents are paying for their teens to go on a youth retreat or their children to go to Church camp. Or you’ve got other event registration fees that you ask people to pay. Anytime you’ve got only one person receiving that money on behalf of the church, you have an opening for someone to embezzle church funds. We recommend that you find some way to have that money turned in to your offering counters or other cashier team. If that is not possible, the individuals turning over such payments should receive a receipt and witness their payments being clearly labeled and put in a drop safe that the counters can access later.

One of the beauties of utilizing online giving is that donations go directly into your church’s bank account.

Some churches give their offering counters access to a copier so that donation checks can be photocopied to provide a record for whoever is responsible for recording donations that show up on contribution statements later. (This works well as long as the photocopies of checks are secured until until they are destroyed after August 15th of the next year.) Other churches just ask their counters to write check numbers on donor’s offering envelopes, if available. The goal here is to make it possible for the offering counters to provide offering recorders sufficient information for donor records while getting the money off church premises as quickly as possible. Having two people drop off the offering at the church’s bank’s night deposit box is a great idea. Single-use plastic deposit bags can be purchased or your bank can provide you with a locking deposit bag, often for a small fee.

One of the beauties of utilizing online giving is that donations go directly into your church’s bank account. If the online giving software is tied into your contribution software, even that step may be handled automatically for you. Sure, there is a cost of approximately three percent (sometimes slightly more) to the church, but the additional security is likely worth it. That said, since camp and other event registration fees are generally pass through transactions, you may want to keep in mind the cost of using online giving for these types of transactions.

Best practices tell us that any of the people involved in handling money coming in to the church should not have anything to do with the money being paid by the church. This means that the person maintaining your accounting records should not be an offering counter or cashier, or even responsible for making bank deposits.

Authorizing Payments

Ideally, requests for payments and/or reimbursements should be in writing and signed off by a leader of the ministry being charged with the cost. In the case where the leader is the person making the request for payment and/or reimbursement, the written request should be signed by the person’s superior. This includes having requests from the pastor signed off by a board member. This process of authorizing payments protects everyone involved in the process and keeps them accountable. We have an ExcelTM payment approval form that we can share if you contact us.

The last link in the chain is having checks signed by someone other than the person who requests the payment or the person who prepares and prints checks. This individual should have available to them not only checks that need signing, but also, all paperwork requesting payment such as receipts, invoices and statements, and the signed payment authorization forms. Once again, separate and protect are the bywords.

If your church has provided staff and key volunteers with church credit cards, each and every transaction should be documented using some kind of Payment Request form accompanied by receipts. The approval process should be every bit as strong as we outlined above. Your church’s bookkeeper should not pay any credit card statement until they have reconciled it with receipts and Payment Request forms. We know of a church staff member who had a charge for an airline ticket to Mumbai, India on one of his church credit card statements. It turned out to be a fraudulent charge that he had nothing to do with.

Lastly, when bank statements arrive at the church, often church bookkeepers reconcile them. May we suggest an alternative? Instead, have some trusted individual (remember background and credit checks?) do the reconciliation. We know of a church where the bookkeeper reconciled every bank statement. The problem was that she had been writing checks to herself and forging the treasurer’s signature on them. By altering the financial reports that the board received, she got away with it for months and the church lost thousands of dollars.

We understand that much of this seems like a lot of bother. But take a moment and think of the anguish and turmoil your church could face if a significant chunk of the money that your people had sacrificially given went missing.

Churches tend to be communities of trust. We want to help church leaders keep it that way by using best practices with how money is handled at church. Prevention is the best way to prevent church funds from being embezzled. Even CPA firms that do audits for churches say that an audit might catch an embezzler, but it’s not guaranteed, and besides, the proverbial horse is already out of the barn.

The Embezzlement Triangle

People, who have been caught embezzling, are said to have fallen victim to one or more parts of the embezzlement triangle. The three legs of the triangle are:

Pressure refers usually to financial pressure. Perhaps an individual’s family’s income has taken a hit due to a family member losing a job. Or a family member is dealing with an expensive health problem, has gotten too deeply in debt or some other catastrophe is draining the family’s resources. They are dealing with a personal financial situation that sadly they don’t see a way out of through legitimate means.

Opportunity defines the method by which the crime can be committed. The person must see some way he can use his position of trust to solve his financial problem with a low perceived risk of getting caught. Since getting caught will likely lead to loss of social status, getting away with the crime in secret is key.

Please be aware that if you choose not to prosecute the suspected embezzler, your insurance company will not reimburse you for any of your loss.

The last leg of the fraud triangle is rationalization. Often embezzlers are first-time offenders without a criminal past. They see themselves as ordinary honest individuals who are caught up in a bad set of circumstances. They may even think that their circumstances are no fault of their own. They may think that all they are doing is temporarily borrowing the money. Or worse, they think in some way that they are entitled to it.

The steps that we outlined earlier are intended to do the most to remove the opportunity leg of the fraud triangle. But if your church is open about its benevolence program and seeks out people to help, it may be able to reduce any personal financial pressure that counters and bookkeepers may succumb to. If the first two legs can be reduced, it is less likely that the third leg will appear.

So if it is revealed that someone involved with your church’s finances is embezzling your church, what should you do? Immediately suspend them from their duties. Don't start an internal investigation, but instead contact local law enforcement and your insurance company. Let them advise you how to gather evidence and the best way to proceed. In addition to being communities of trust, churches often try to be places of grace. As a result, they prefer to extend grace to the perpetrator rather than have them charged with a crime. Please be aware that if you choose not to prosecute the suspected embezzler, your insurance company will not reimburse you for any of your loss.

Dealing with a financial fraud within your church family like embezzling, is going to be a difficult, painful time for your church and its leaders. Tough decisions will have to be made—decisions that some people in your church will strongly disagree with. That is why our advice is to take pro-active steps ahead of time that will reduce the likelihood of embezzlement happening at your church.

Please Note: This information is provided with the understanding that Church Administrative Professionals is not rendering professional advice or service.

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Deborah Miller, cca

Charles Kneyse

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