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Awareness of ALL Sources of Revenue
Posted in: Asset Misappropriations, Blog, Contributions and Offerings Fraud, Effects of Church Fraud, Employee Embezzlement, Fraud Prevention, Internal Fraud, Uncategorized by psk on January 3, 2011 | No Comments
Any discussion of church tithes and offerings practices usually includes both a pat on the back and a criticism. First, in regard to the normal Sunday offerings I can say to most churches, “Way to go!” In fact, when I ask a client if they have taken any fraud prevention steps, the first thing usually mentioned is how much the church has done to protect the offering plate. Seldom do I encounter a church that does not have multi-member count teams, rotating terms of service, locking bank bags, dual-access safes and in an increasing number, the use of an armored car service. I would venture an educated guess that the majority of churches have more than adequate controls over Sunday receipts. For some, Fort Knox would be an easier target.
But in regard to the rest of the money, the funds that come in during the rest of the week, I often have to say, “What were you thinking?” While being diligent to a fault on Sunday morning, almost anything and everything goes the rest of the week. Here are two in my hall of fame:
- Offerings, fees and other receipts arriving in the mail or dropped off by members are simply dumped on the financial secretary’s desk. I have entered offices with large piles of unguarded cash on the accountant’s desk more times than I can remember.
- Special events funds sometimes are “managed” by a volunteer. The funds are kept off campus and are not turned over to the business office until the event is over. No accounting or reconciliation of goods sold is required.
Needless to say, some of our more interesting and sometimes humorous fraud stories occur in these two areas.
However, this is no laughing matter, because a significant “event” could cause irreparable damage. That being the case, definite steps should be taken.
- First, a brainstorming session could be held, the purpose of which is to determine all sources of income.
- Once identified, all sources should be included in the church’s normal collection policies and procedures. For example,
- For weekday drop-offs and mail-ins, a lock box could be kept in the church’s safe in which all of these receipts would be placed unopened.
- A separate log or register should be maintained to keep a record that the amounts were received.
- On Sunday, the box could then be opened and counted by the teller team on duty.
Security Blanket #4 – Rotating Count Teams Are Not Enough!
Posted in: Charitable Contributions Fraud, Check Forgery, Check Fraud, Check Tampering, Contributions and Offerings Fraud, Credit Card / Debit Card Abuse, Effects of Church Fraud, Employee Embezzlement, Online Fraud, Payroll Fraud by psk on October 11, 2010 | No Comments
“We have rotating count teams with clear rules that account for every penny we collect in offerings…”
While this statement is not inaccurate, it is short-sighted. When churches think of fraud, Sunday offering protection is usually the first thing that comes to mind. And as a result, most churches do a very good job in protecting Sunday receipts. In fact, Fort Knox may be an easier target than some churches I have visited who have ratcheted down tightly their Sunday collection procedures!
But, if this is all a church does in protecting itself from fraud, they are at risk. There are at least two significant reasons:
First, Sunday offerings are not the only time cash comes into the church. Many churches with air-tight security over Sunday collections completely ignore what happens from Monday through Saturday. And in many churches, the amounts can be substantial, including day care fees, special event fees such as banquets and conferences, food sales, book sales, fund raising revenues, etc., etc., etc. Also, tithes and offerings that are dropped off during the week often circumvent the entire teller process and instead land directly on the bookkeeper’s desk.
Second, cash inflow is not the only place where embezzlement takes place. In fact, a case can be made that the larger cases do not involve the cash inflow processes, but the outflow. The Association of Certified Fraud Examiners backs this assertion with statistics showing that while skimming (taking money before it is recorded) makes up 20% of reported fraud cases; check tampering is even more prevalent, making up 25% of the cases. In addition, fraudulent expense reports and payroll scams chip in another 29% for good measure.
So, churches with tight controls over Sunday cash receipts should be commended for their efforts, but also reminded that effective fraud prevention includes extending this vigilance to the other means of inflow, and the outflow side as well.
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Are You Being Used?
Posted in: Blog, Breaking News, Charitable Contributions Fraud, Contributions and Offerings Fraud by psk on October 5, 2010 | 2 Comments
On September 9, 2010, St. Petersburg Times reported the following story:
Pastor Pleads Guilty in Embezzlement Case
Gregory S, 38, was an accountant for a staffing company when he was not busy preaching from the pulpit. During his employment with the staffing agency, he was able to write checks totaling $813,142 to his church without the staffing company’s or the church’s knowledge. Earlier this month, he pleaded guilty to theft from an employee benefit plan, he managed. The stolen funds received by his church were then used for personal and other expenses.
All churches are protective of the outflow of funds as most frauds occur during this process. However; the same level of attention, if not more, should be paid to the inflow of funds as well.
It appears that his church did not have a formal gift acceptance policy or if it did, the policy was not being followed. A proper gift acceptance policy and adequate contributions procedures, if followed, would have acted as a safety net and would have caught the fraudulent remittances by the retirement plan from being deposited in the church’s bank accounts.
Every ministry should adopt a policy regarding accepting gifts and contributions as not all gifts and contributions are necessarily beneficial to the organization. An effective gift-acceptance policy should be formalized, in writing, and must achieve the following primary objectives:
First, it should identify the types of assets your ministry will accept (e.g., cash, real estate). Next, it should provide guidelines as to the forms of gifts that are acceptable. Finally, it should define your ministry’s role in administering the gifts.
But that’s not enough. To meet the needs of your ministry and to help protect your resources and reputation, your gift acceptance policy should also:
I. State that your ministry will obtain legal input and advice when appropriate.
II. Specify limits your ministry may want to impose, such as maximums or minimums in regard to charitable gift annuities.
III. Detail any restrictions that donors will be permitted to place on gifts.
IV. Outline the responsibilities that donors have with respect to obtaining appraisals for their own tax purposes.
V. Identify the specific circumstances under which your ministry will obtain an independent appraisal.
VI. Outline how your ministry plans to acknowledge gifts.
VII. Note the time frame for communicating with donors.
VIII. Specify the procedures for amending the gift acceptance policy.
The pastor’s scheme would have been caught instantly, had the church communicated with the donor upon receipt of the first check.