In 2014, churches lost an estimated $39 billion due to internal financial fraud. Compare that with the $35 billion that churches spent on worldwide missions in the same period.
The statistics, from the Center for the Study of Global Christianity, illustrate how improving stewardship through better controls can have a real impact on any individual church’s objectives.
Church fraud is particularly pernicious because it takes place amid an environment of trust. Even when discovered, there is a reluctance to prosecute. It’s because of that goodwill that most fraud schemes go undetected for so long (median duration is 18 months) and hold so much appeal for would-be thieves.
But trust does not have to displace good sense. The key is to run your church finances like you would run a business, and put certain controls in place that reduce the opportunity for theft in the first place.
A majority of perpetrators of church fraud are first-time offenders without a criminal history, and most are long-time employees of the church.
The two biggest schemes perpetrated against churches are (1) skimming of the weekly collection between when totals are collected, counted, recorded and deposited, and (2) fraudulent cash disbursements (an employee writing checks to himself but recording the transaction in church records as going to a vendor).
Additionally, a growing issue is credit card abuse (when an employee or minister charges personal items on the church credit card).
The amounts of church fraud are not small, and the schemes can take a variety of approaches. The median loss in fraud cases against churches is $145,000.
So how do you protect the church’s resources and improve financial oversight? Here are some tips:
- One of the most important steps is to make sure your church has a system of adequate segregation of duties. The person who writes the checks should not be the same person who reviews the checks and bank statements each month. Having two authorized signatures on checks, not using computer-generated signatures and only allowing signature stamps to be in the custody of the authorized signer also can reduce the opportunity for fraud.
- When it comes to the weekly collection, duties should be divided among a number of people, and there should always be at minimum two people to collect and count the offering. Members should be highly encouraged to use envelopes. And to prevent skimming of an individual’s tithe without anyone recognizing it, the collection team, count team and the person handling the deposit should not have access to the general ledger or the member contribution records.
- To reduce credit card fraud, the church should have a written policy on use and misuse, receipts should be required, and charges should be reviewed monthly. Penalties for misuse of a credit card — such as payroll deductions or termination — should be spelled out.
- As with most organizations, allowing wider oversight will provide better objectivity and protection for the church. If you can, put members on your church finance committee who have a background in accounting or other financial expertise; they can understand potential exposures. The finance committee should be reviewing monthly financial statements and meeting at least quarterly to discuss results and inquire about anything unusual or unexpected.
- The finance committee can also be a bulwark against what is known as “affinity fraud.” That’s when fraudsters come in and try to infiltrate the church, going after individual members at first and then the group. These are usually centered around a scam with some seemingly positive religious purpose.
- An audit can turn up potential weaknesses in financial controls. But if your church is not required to have an audit by a lender or denominational affiliation, it still could get a less costly internal control assessment consultation from a qualified CPA who will help identify potential vulnerabilities that should be addressed.
Most important, if your church does fall victim to fraud, don’t hesitate to report it. Unfortunately, an estimated 80 percent of church-related fraud goes unreported, sometimes because church leaders want to downplay the loss of funds to its congregants. Most perpetrators of fraud know that, affirming their belief that they can steal from the church and get away with it.