Church Secretary Takes Her Church for $200k

Posted in: Breaking News 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 temptaition 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

Chapter 8: Do You Have Any Idea How Much Money You Make?

Posted in: Blog by psk on December 7, 2011

From the book, Weeds in the Garden, in Chapter 8 “When church fraud or embezzlement is mentioned most people immediately think of someone stealing from the offering plates. As a result, many, if not most churches do a pretty good job of protecting the Sunday offerings. In fact, many actually go overboard in tightly ratcheting down the money that comes into the church during worship services and Sunday School classes (pg. 102).

But what about …

• Special event fees (conferences, banquets, etc.)
• Fundraising activities
• Mail in contributions
• School or Mother’s Day-out registration and tuition

How are these funds handled? Who handles them? And is there EVER just one person in control of these funds?  The most effective control on cash is never to allow it in the possession of only one person for even the shortest amount of time.

One story I read about, while researching this topic, involved the ‘treasurer’ of a fund raising event for a church ‘borrowing’ several thousand dollars from the fund.  Strong control over cash from Sunday collections is vital, but who is maintaining this same diligence Monday through Saturday? Maybe a ‘trusted’ employee or volunteer? What challenges do you face with weekday receipts?

–Lisa Chapman is an auditor specializing in church accounting with PSK LLP.

Chapter 3: How strong is your batting order?

Posted in: Blog by psk on November 30, 2011

Chapter 3 of Weeds in the Garden illustrates the value of planning and organizing the structure of the leadership in a church. “Even in a church, tone at the top does not happen by accident. It begins with a desire by the church leadership, (executive level employees and lay leaders) to operate in transparency. To instill a healthy tone at the top, a concerted effort must be taken that includes communicating on a regular basis the need for accountability in all areas of the church, as well as the values the church expects its representatives to model. Church leadership should also make an open statement of its commitment to transparency by participating in accountability measures such as requiring all individuals in positions of trust to sign conflict of interest statements. Most importantly, the church must insist that these trusted individuals live by the church’s accountability rules.”(pg. 33)

Almost all of us have experienced the ‘boss’ that either wasn’t willing to lead the team or didn’t play by the same rules they tried to implement. You can usually observe the environment around this ‘boss’ and note the lack of respect, trust, and loyalty. Unfortunately, this atmosphere often bleeds over onto the organization as well.  When employees and volunteers of a church lack these elements of integrity, the organization will suffer. How strong is the structure of your organization? Is your church in danger of making the front page?

–Lisa Chapman is an auditor specializing in church accounting with PSK LLP.

Chapter 7: Are You Playing By the Rules?

Posted in: Blog by psk on November 23, 2011

Pg. 86 Weeds in the Garden – “There is one other thing about rules that should not be overlooked: they usually do not happen on their own. Rules usually come into existence after someone has done something wrong. They exist to remind us that the paths we walk on can be dangerous. Willful disregard can be an indicator of serious problems. We all complain about the IRS and the Tax Code it enforces. But they only exist because people sometimes have difficulty doing the right thing.”

There is a familiar story in the book of Luke where the Jewish leaders tried to trick Jesus into saying something incriminating that could be reported to the Roman governor and used to arrest him.

“‘Now tell us—is it right for us to pay taxes to Caesar or not?’ He saw through their trickery and said, ‘Show me a Roman coin. Whose picture and title are stamped on it?’ ‘Caesar’s, they replied. ‘Well then,’ he said, ‘give to Caesar what belongs to Caesar, and give to God what belongs to God.’”

I grew up as a preacher’s kid. My dad had his own paraphrase of that last verse. “Give to Caesar what belongs to Caesar, but ONLY what belongs to Caesar!” In other words, good financial planning, and knowledge of IRS rules can 1) keep you out of trouble for not paying enough to “Caesar” and 2) keep more in your pocket by not paying too much, either.  This is important for churches and non-profits as well as for the pastor.

That being said, if there are obvious signs of non-compliance, such as a stack of penalty notices from the IRS, it may be an indication of something much more nefarious than incompetence or apathy. Just as Paul wrote to the church in Rome, the law (even tax laws!) is there to show us our “sin.”

“Well then, am I suggesting that the law of God is sinful? Of course not! In fact, it was the law that showed me my sin. I would never have known that coveting is wrong if the law had not said, “You must not covet.”” (Romans 7:7)

In some contexts (particularly for us preacher’s kids!), rules were made to be broken. But rules were also made to point out shortcomings, directly and indirectly. The rules exist anyway…we may as well use them to help us in our prevention efforts!

How do you feel about rules? Are you a rule-breaker or a rule-follower? Have you seen situations where a rule had an unexpected effect?

Join the conversation by commenting below. Or ask your own questions about church fraud, and we’ll try to address them in a future post.

– Delton de Armas, CPA  as National Relationship Manager with PSK LLP he focuses on developing relationships with church leadership and intercedes to identify challenges and offer solutions.

CFO gets Eight Years

Posted in: Breaking News by psk on November 18, 2011

Washington church CFO received his eight year sentance after his August conviction of emebezzling from the church. “He exploited other people’s charity to fund his extravagant vacations, VIP tickets to NBA games, and fancy cars,” U.S. Attorney Ronald Machen said in a statement. 

See the story at ABC7

Chapter 5: Are you a Geek? Maybe You Should Be!

Posted in: Blog by psk on November 16, 2011

How tech-savvy is your Church? What oversights are in place to keep your Church in-step with new technology? In his book, Weeds in the Garden, Verne Hargrave points out that although advances in information technology have simplified accounting and record-keeping for Churches, it has also created additional risks.

“The area where churches may be the most naïve are cyber threats from outside the walls of the church. Few give enough thought to a basic twenty-first century fact of life; by opening one single internet account, if care is not exercised, the world has been invited into your living room. Today, except for the very smallest of congregations, all churches are vulnerable to hackers wanting to take advantage of the perceived, and in many cases, real naiveté….

Churches also make online purchases, sell goods and event tickets online, and an increasing number receive offerings online.  Without question these steps have improved the efficiency and effectiveness of churches. Using fewer staff and volunteers and spending much less time, churches can do a better job of collecting and tabulating gifts, managing church activities, reporting results, and most importantly, reaching out to the unchurched. However, each of these new ways of doing business represents a new porthole through which fraudsters can gain entrance to church data and assets.”

Technology can greatly simplify matters for churches; however, it also opens up new ways for hackers and those with impure motives to steal money or data. What is your church doing to protect its members? Who is looking out for your church?

–Justin Baldwin, CPA is a Senior Auditor specializing in church accounting with PSK LLP.

Chapter 2: First, Be Sure You Know What You Are Looking For…

Posted in: Blog by psk on November 9, 2011

In Chapter two of the book Weeds in the Garden, by Verne Hargrave, he discusses three types of fraud: fraudulent financial reporting, corruption and misappropriation of assets.  The most common of which is misappropriation of cash, or theft in the church environment.

“Generally, two terms are used to describe frauds involving an organization’s cash receipts: skimming and larceny.  The difference between the two methods is the timing of the fraud.  The process of stealing money before it is recorded in the accounts of the church is called skimming.  A classic example of church skimming is an usher removing cash from the offering plate on his way to the counting room.  On the other hand, if the usher removes money from the bank bag on his way to the bank, after the funds have been counted and recorded in the church’s records, he has committed larceny.  Cash larceny tends to be a little more difficult because it usually requires “record doctoring” in order for the thief to cover his tracks.  Because most churches tend to look closely over the Sunday offerings, thieves’ favorite targets for this type of behavior tend to be other revenue sources, such as food service cash boxes, weekday drop-off and mail receipts, and fund raising cash managed by volunteers.”

Midweek receipts are the most vulnerable to theft in most organizations.  Many times as an auditor I have seen “Timmy’s Camp Money” or “Cash from Bake Sale” sitting on a financial administrator’s desk tempting any passerby.  In keeping with Matthew 26:41, we know that the spirit is willing, but the flesh is weak when faced with temptation.  So let’s be careful to use controls like a lockbox where church members and staff may drop the cash into a locked depository that can later be opened and accounted for by the administrator.  Otherwise your cash might just walk away and you may never even know.

Are there any practices in your Church that might be vulnerable to theft?

Check out the Weeds in the Garden website.

–Daniel Lienemann, CPA is a Senior Auditor specializing in church accounting at PSK LLP.

Chapter 10: Do You Know Who Your People Are?

Posted in: Blog by psk on November 2, 2011

Pg. 139 Weeds in the Garden “To document its knowledge of its workforce the church should maintain personnel files for each employee. No paycheck should be issued to new employees until a comprehensive employee file has been created.”

There are a number of reasons why a file should be maintained for each employee, not the least of which is to make sure the church isn’t paying any “ghosts.” There are a number of documents, too, that should be maintained in each employee’s file. For example, the file should contain a signed W-4 detailing the employee’s withholding information, which is updated annually. One effective fraud preventer is a “surprise” distribution audit, where each employee is required to provide a valid ID to receive his or her paycheck. With the popularity of direct deposit, physical paychecks are less and less common, so a similar “surprise” audit could entail requiring all employees to provide identification to receive a new W-4 (which is required to be completed annually).

In addition to proper documentation within the personnel files, a church should establish clear segregation of duties in regard to payroll. The duties that should be segregated would include:

* Computation of gross wages of hourly employees.

* Preparation of payroll checks.

* Distribution of payroll checks to employees.

* Preparation of quarterly payroll reports and annual W-2 forms.

* Entering the payroll information on the church’s G/L.

Proper documentation of all employees will prevent “ghost” employees, and segregation of duties will keep your real employees from haunting you with fraud!

Does your church have a personnel file for each employee? What items do you require the file to contain?

Join the conversation by commenting below. Or ask your own questions about church fraud, and we’ll try to address them in a future post.

– Delton de Armas, CPA  as National Relationship Manager with PSK LLP he focuses on developing relationships with church leadership and intercedes to identify challenges and offer solutions.

Chapter 9: Can’t You Control Your Spending?

Posted in: Blog by psk on October 26, 2011

As a nation, uncontrolled spending at the personal level has led us into financial crisis in the past several years. Churches are not immune to detrimental attitudes and practices of the nation. Additionally, churches are particularly vulnerable to potential fraudsters. In his book, Weeds in the Garden, Verne Hargrave discusses the church’s finances, its attitude and responsibilities towards them, as well as steps it can take to manage them in an intelligent and responsible manner.

Verne writes,

“A church should develop a rational plan to expend its resources, giving equal weight to accountability and ministry effectiveness. This is not only good stewardship; it is also good fraud protection…

Fraud prevention over cash disbursements follows the same cardinal principle used in managing cash receipts. Money, or access to it, should never be in the possession of one individual, regardless of the brevity of time. The only difference between these two areas of fraud prevention is the direction; outflow as compared with inflow.

Every church should perform a periodic fraud assessment of its cash disbursements with the objective of identifying and strengthening weak spots. Weak spots consist of any place along the church’s cash ‘outflow’ path (disbursements) where one individual can help himself to the church’s money.”

Has your church performed a Fraud Risk Assessment lately, or ever? Can your church’s contributors rest at ease that their sacrificial giving is being spent wisely and is not lost to theft?

–Justin Baldwin, CPA is a Senior Auditor specializing in church accounting with PSK LLP.