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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 | No Comments
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 Fraud, Credit Card / Debit Card Abuse, Employee Embezzlement, Fraud Prevention, Internal Fraud by psk on May 10, 2012 | No Comments
Our church issues credit cards (in the church’s name) to employees and/or volunteers.
At a response rate that came as no surprise to me, 86% of the church’s who took part in our survey issue credit cards to employees. It continues to amaze me how many churches follow this practice. Seldom do we see this in our work with commercial clients. Most businesses with accountable business expense reimbursement plans require employees to use their own cards. This is particularly true with smaller organizations. Some larger companies do issue corporate cards, but all of them I have seen keep the employee on the hook by including the employee on the account. The employee pays the bill AFTER being reimbursed by the company. Employees of businesses that do it this way tend to be more responsible credit card users because there is always the possibility that their employer may say “NO!”
Why do we consider the issuance of credit cards (in the church’s name) a fraud risk? I have a simple answer. The largest fraud investigation I have conducted resulted in more than one million dollars in losses. Illicit use of just two credit cards was responsible for 75% of the theft!
Without sufficient oversight, credit cards can turn the entire purchase approval system on its head. I’ve seen it happen…
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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Do you really need a debit card?
Posted in: Breaking News, Credit Card / Debit Card Abuse, Employee Embezzlement by psk on March 17, 2010 | No Comments
In another post (See Lame Excuse #1), I use the story of Judas stealing from the disciples’ money bag to illustrate that fraud can take place in any church. This week I found another Biblical example of this truth. Luke, in Acts Chapter 5, recounts the sad story of Ananias and Sapphira.
In the story, this couple sells a piece of property and promises the church (and the Holy Spirit!) that the proceeds would be given to the congregation. As it turns out, the couple comes up with a scheme to withhold some of the funds while making it appear they had given the whole amount to the church. When confronted, both Ananias and Sapphira cover themselves by lying.
This week, in my routine “fraud news search”, I found a story with some similar characteristics.
Former Church Treasurer Charged…
Did you notice that this treasurer essentially did the same two things Ananias and Sapphira did. She stole money from the church and then lied about it by “doctoring” the books.
What can a church do to avoid such a fate? Here are two observations:
The fact that the fraud was not discovered until a new treasurer took over implies that no one, other than the treasurer, ever looked at the accounting records. The church was violating the basic accounting philosophy of adequate segregation of duties. Lack of involvement by others made it easy for the treasurer to steal, and then doctor the records to cover her tracks. Something as simple as having someone other than the treasurer reconcile the bank account monthly might have been enough to prevent the thefts.
Second, I have never been convinced that debit cards are all that useful in the church world. Sure they are efficient, but a debit card (and his close relative, the credit card) can completely circumvent the best bill approval and payment systems. If a church insists that it must have cards, by all means adopt a credit card use policy to govern their use.
Church Fraud Hitting Close To Home
Posted in: Breaking News, Check Forgery, Credit Card / Debit Card Abuse, Employee Embezzlement, Fraud Prevention by on January 22, 2010 | No Comments
Because of our involvement in fraud prevention we make it a point to keep up with the latest news by periodically searching the web for news stories. It seems like the pace of fraud occurrence is quickening.
Here are two recent stories of church embezzlement:
PSK is not involved in any of these situations so I have no idea about anyone’s guilt, innocence or the ultimate outcome of the cases. But, I am sure of one thing; no church or ministry wants to make these types of headlines.
To avoid this kind of publicity we have been urging, almost pleading with churches to take this situation seriously. A “clear and present danger” exists and every church should immediately perform an analysis of their current management structures to determine their vulnerabilities to fraud.