Fraud in the Church – What the Survey Tells Us

Posted in: Affinity Fraud, Credit Card / Debit Card Abuse, Employee Embezzlement, Fraud Prevention, Red Flags by psk on May 17, 2012

Our church has implemented a written credit card policy to control credit card purchases.

Ok, I know I was a little harsh in the last post…  I guess it’s because I have seen too many credit card train wrecks!  The million dollar event I discussed in the last post was definitely the largest but I have seen many of its smaller brothers and sisters.

Although over 80% of the surveyed churches issue church-named credit cards, the results of the next query gives me some comfort.  70% of these churches have implemented a credit card policy to monitor credit purchases.  Unfortunately, that leaves nearly a third with no documented policies to give oversight over credit card purchases.  Based on the things I have seen, these 30 per centers are living on the edge…

It is imperative that any church issuing credit cards to employees and volunteers has a credit card policy to lay down usage guidelines. At a bare minimum a credit card policy should limit the dollar amounts of single purchases and restrict the use of the cards to certain businesses.

What would you add to these two?

Fraud in the Church – What the Survey Tells Us

Posted in: Affinity Fraud, Check Forgery, Check Fraud, Check Tampering, Expense Reimbursement Scheme, Fraud Prevention, Online Fraud by psk on May 3, 2012

Our church has established a “Positive Pay” arrangement with our bank.

Increasingly, due to technological change and advancement, the threat of fraud is no longer limited to dishonest employees.  Hackers and other “online bandits” have become quite proficient in draining the bank accounts of the unsuspecting.  One defense against this is the establishment of a Positive Pay arrangement with your bank.

Only 5% of our respondents have this type of program in place which is surprising because Positive Pay is a simple three-step process.

1 – During the check writing process a list is compiled of bills to be paid.

2 – The list is sent to the bank.

3 – The only checks or drafts cleared by the bank are those on the list.

I am very curious why so few take advantage of this.  Any ideas?

Fraud in the Church – What the Survey Tells Us

Posted in: Asset Misappropriations, Blog, Effects of Church Fraud, Employee Embezzlement, Fraud Prevention by psk on April 26, 2012

Our church has established an “approved vendor list”.  All payments for goods or services are made only to vendors on the list.

A surprisingly high percentage (82%) of our respondents has not established an “approved vendor list”.  A common misconception in the church environment is that “If we are going to be hit, it will be directed towards our tithes and offerings.”  While this does happen frequently, some of the largest dollar losses occur in the disbursement processes, not the receipts.  Also, these types of frauds, because of their difficulty of detection, seem to go on for longer periods of time than thefts of cash receipts.  From my observations, it seems that many more churches are hit after their revenues are safely in the church’s bank accounts, not on their way in.

The first line of defense against disbursement fraud is the development of well-defined AND written bill approval and payment policies and processes.  In addition to purchase orders and check requests, such a system should include a formal vendor selection and retention process. After successfully screening potential donors, the church should develop a preferred vendor list. As part of the check signing process, payees should be compared to the approved vendor list.

Fraud in the Church – What the Survey Tells Us

Posted in: Blog, Employee Embezzlement, Fraud Prevention, Uncategorized by psk on April 12, 2012

Our church follows written guidelines in administering benevolence fund activity.

Many churches establish benevolence funds to assist needy persons.  This is a normal and expected function of any church.  However, if this activity is not monitored closely the benevolence fund can become a target of a thief.  Benevolence funds are favorite targets for several reasons:

• There is no business cycle making baseline analysis almost impossible
• Checks are written to a variety of individuals and vendors not closely related to the church making it easy to slip one more in the pile
• To protect the confidentiality of recipients, some churches operate separate bank accounts that only one person has the right to see!

35% of our respondents do not follow written guidelines in administering assistance programs. It is extremely important that the Church establish clear policies on its benevolence activities.  Such policies should include but not be limited to what funds will be accepted, who will administer the funds, who will receive the funds and for what purposes the funds will be spent.  Best practices also dictate that a documented beneficiary application and approval process be followed when awarding assistance.

Fraud in the Church – What the Survey Tells Us

Posted in: Asset Misappropriations, Blog, Fraud Prevention by psk on April 5, 2012

Our church requires volunteers responsible for special events to submit written financial reports.

The vast majority of churches have implemented adequate control procedures over the Sunday offerings.  However, funds that arrive in the church office from Monday through Saturday are a completely different story.  These types of revenues typically consist of offerings dropped off by members, fees for various events and food service revenues and special event revenues under the direct supervision of volunteers, such as fundraisers, banquets, and short-term mission trips.

According to our survey, a full third of the respondents have no reporting mechanism of these types of events. Theft of special events funds by trusted volunteers frequently pop up in the news media.  For example, in the city where I live, a prominent public school coach was relieved of his duties when it was learned that he was in the regular habit of skimming from the receipts his team’s annual fund raiser.   To avoid the headlines, churches at a minimum should require volunteers to account for tickets and/or products sold and fees collected at each special event.  As a matter of routine the sales report should be reconciled with the total cash generated and deposited into the church bank account.

Fraud in the Church – What the Survey Tells Us

Posted in: Blog, Check Forgery, Employee Embezzlement, Fraud Prevention, Uncategorized by psk on March 22, 2012

We present a list of authorized check signers to the Leadership Team. (Elders, Finance Committee, etc.)

This is one of the routine questions we ask financial staff when we conduct an audit of a church.  While monitoring check signatures has some merit, it is in my opinion, rather overrated due to the fact that commercial banks no longer review signatures to the same extent they did in the past.  Also, if you are unfortunate enough to hire a thief with courage and great hand writing skills, no amount of signature verification will be sufficient. A person with sufficient bravery and forgery skills can wreak havoc on even the most secure systems.

But, a byproduct of this process can be extremely beneficial.  An annual review of authorized check signers, forces the church to also assess how many and the nature of the bank accounts it has on hand.    If no review is ever performed, it can be easy for a bank account (or two or three…) to unofficially “go inactive”.  These “dormant” accounts can sit under the radar for years until a dishonest employee discovers them.

One of the hurdles a thief has to jump is once funds have been diverted, how to get stolen dollars out of the church.  Dormant accounts are very handy in meeting this challenge.  To illustrate, small amounts can be siphoned out of a church by the payment of phony invoices. The thief allocates these illicit transactions throughout various budget line item accounts being careful to keep the total for the year within budget limits.  Once the funds are safely in the dormant account the thief simply transfers the funds to a personal account…

Our survey results indicated that 41% of the respondents reported they did not conduct an annual evaluation of its bank accounts and signatures.  That is a wide margin of opportunity for would-be thieves.

Church embezzlement case goes to trial

Posted in: Breaking News by psk on March 9, 2012

Pastor ordered to stand trial for personal use of Church funds

- defense claims pastor had almost no rules to follow.

Lansing State Journal has the complete story @ LSJ.com

Fraud in the Church – What the Survey Tells Us

Posted in: Blog, Effects of Church Fraud, Fraud Prevention, Uncategorized by psk on February 29, 2012

The occurrence of occupational fraud within the church community continues to rise at epidemic proportions.  Evidence of this is found in the steady flow of news accounts reporting churches hit with fraud:

• The Archdiocese of New York was bilked to the tune of $1M.
• Incredibly, so was the Archdiocese of Philly.
• A pastor in Grand Rapids Michigan is on the hot seat for stealing between 50K and 100K by using church bank accounts and credit cards.
• A woman in Ohio is accused of stealing $143K from the church where she was employed. (Unbelievably in an attempt to cover up her deeds, she sent an appeal letter asking each member to send $200 to the church to cover a church debt!)

Just in the past year we have been called in to help clients deal with:

• A church employee who refused to be accountable for credit card usage.
• A treasurer who used his position to steal from the church.
• A day care director who skimmed from the tuition receipts.
• A church hit by vendor fraud.
• A church bookkeeper who paid personal expenses with church funds.

In an effort to find out what is going on, PSK in cooperation with the NACBA is in the process of conducting a survey to determine the extent to which churches are attempting to address this problem.  In the following weeks we will be posting some of our preliminary findings.

Church Secretary Takes Her Church for $200k

Posted in: Affinity Fraud, Employee Embezzlement, Red Flags by psk on January 6, 2012

What went wrong at this Church? How could this one employee make off with $200k of funds raised for her congregation and parochial school? Read the full article here. Simple financial controls may have prevented this! Does your Church have adequate internal controls? We can help!

Source: Journal Sentinel Online – Milwaukee

Two Million to the wrong place?

Posted in: Uncategorized by psk on December 12, 2011

This Florida church is accused of “mishandling” donor’s contributions– two million dollars worth! Read the article here. This is a sobering reminder that, just because an organization is a Church does not mean that it is not made up of sinful people who are prone to temptation and failure. In light of this, what can your Church do to prevent a similar situation? Certain procedures can be implemented to both lessen temptation for your Church’s employees and protect the name of Christ. As always, we’re here to help…

Sourced from CBS channel 12 Florida