Comprehensive Human Resources Planning

Posted in: Blog, Effects of Church Fraud, Employee Embezzlement, Fraud Prevention, Internal Fraud, Payroll Fraud, Phantom Employees by psk on January 17, 2011 | No Comments

Except in the rarest of cases, personnel costs are the single largest expenditure of a church.  Because churches are in the “service industry”, it should come as no surprise that forty-five to fifty percent of the typical church budget will be dedicated to employee related costs. 

This highlights a basic principle in the behavior of an embezzler.  For obvious reasons, people committing fraud prefer to remain anonymous.  In order to enjoy the fruits of their labor they must remain hidden.  It is much easier to hide fraud among the bigger numbers – like payroll.

Key: As a result, personnel costs are a favorite target of fraudsters.  Usually, fraud in this area is small-time with one employee falsifying their own time card or submitting phony expense reports.  However, some payroll frauds can be quite extensive and creative.  The more spectacular (and costly) may involve:

• “Phantom” employees
• Fraudulent insurance claims
• Bogus tax refunds. 

These scams can easily run into the tens of thousands of dollars.

Churches should not be naïve about payroll fraud.  Because churches are as vulnerable to personnel fraud as businesses, they should do two things. 

• First, repeating the theme of a previous section, churches must follow the IRS compliance guidelines.  This means designating an independent compensation committee to set compensation amounts, based on market comparison information, and documenting all decisions made.  At a minimum, this process should be followed for executive level staff but is also a good practice to follow for the entire church staff.
• Second, churches should also follow a “best practices” approach in human resources administration.  In addition to contributing to a healthy workforce these best practices also contribute to eliminating the possibility of fraud.  A few of these practices are:
  • Establishment of formal job descriptions
  • Performing background checks
  • Performing regular performance evaluations and obtaining written termination letters from departing employees.

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.

If you’d like to hear more about our Best Practices Review or one of the many other services we provide, please contact us at (817)664-3000 or email us using our contact form.

Security Blanket #3- The Loyal Bookkeeper

Posted in: Blog, Check Forgery, Check Fraud, Check Tampering, Employee Embezzlement, Fraud Prevention, Internal Fraud, Payroll Fraud by psk on October 4, 2010 | No Comments

“Our bookkeeper has been a member and served our church for many years.  We trust him/her completely…”

Church’s Secretary accused of embezzling $1.5 million

Former pastor guilty of stealing from church

Church’s former secretary jailed on fraud charges

Priests get jail for stealing from church

Church secretary accused of stealing thousands

Woman accused of stealing from church

Baptist church secretary was arrested and charged with 17 counts of credit-card fraud…

Church financial secretary steals $216,000—asks for forgiveness

Church secretary admits to stealing $274,000 from congregation

These are all actual headlines from articles about church theft.  I think we’d all agree…this is NOT the publicity that anyone wants, particularly a church.  In most of the church embezzlement cases I have read about, the crime is not perpetrated by a thief who has sought out a soft target.  More often churches are embezzled from by a long-time, dedicated and trusted employee who has been given total access to the church’s financial operations.  In short, it is usually not bad people who steal from churches.  Rather, church embezzlement is committed by good people who find themselves (or their close relatives) in bad situations.

Churches victimized in this way have often not taken into account the first leg of the “fraud triangle” – Pressure. (Rationalization and opportunity are the other two.)  Pressure can be defined as any outside force or set of circumstances that creates a need for cash.  Pressure comes in many forms, including large unexpected medical costs, business reversals, and in far too many cases, addictions.  When faced with these issues, many people of otherwise unquestioned integrity are tempted to “borrow” from their employer to alleviate the pressure.

Churches have limited control over the pressures their employees and volunteers face.  However, they have almost total control over one leg of the triangle – OPPORTUNITY.  By establishing strong financial controls and processes churches can go a long way in removing temptation from its employees. 

If you’d like to hear more about our Internal Control Assessments or one of the many other services we provide, please contact us at (817)664-3000 or email us using our contact form.