Fraud in the Church – What the Survey Tells Us

Posted in: Asset Misappropriations, Blog, Effects of Church Fraud, Employee Embezzlement, Fraud Prevention, Internal Fraud, Uncategorized by psk on April 19, 2012 | No Comments

Our church reconciles payroll quarterly reports with the payroll journals and general ledger.

Almost 25% of our respondents do not perform this relatively simple task. I can show you plenty of news reports of churches who wish they had!  Occasionally, I need to point out the obvious; thieves do not like to get caught!  To remain successful at this, they have to hide in the tall weeds. This means they are going to target the big numbers in a church’s financial statements.  And the biggest of the big numbers is payroll cost.

Typically, payroll makes up 50% of a church’s operating budget. For example, if a church has a one million dollar budget, a thief can easily find cover among $500K of tall weeds!

To avoid being the victim, churches should take care to:

• Know who their employees are
• Know how much their employees are paid
• Periodically review activity in the payroll general ledger accounts
• Compare payroll reports with budget totals

Fraud in the Church – What the Survey Tells Us

Posted in: Blog, Employee Embezzlement, Fraud Prevention, Uncategorized by psk on April 12, 2012 | No Comments

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: Blog, Check Forgery, Employee Embezzlement, Fraud Prevention, Uncategorized by psk on March 22, 2012 | No Comments

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.

Fraud in the Church – What the Survey Tells Us

Posted in: Asset Misappropriations, Blog, Employee Embezzlement, Fraud Prevention, Internal Fraud, Uncategorized by psk on March 15, 2012 | No Comments

Our church has established a formal program for reporting fraudulent activities.

In its 2010 Report to the Nations, the Association of Certified Fraud Examiners revealed that 40% of fraud cases were initially detected by anonymous tips. Half of the tips came from employees.  Approximately two-thirds of these cases were communicated through the entity’s fraud hotline.  This data is not inconsistent with prior years’ findings.  In fact, during one year a whopping 60% of detected fraud was discovered by the combination of tips and/or by accident!  In our survey, we learned that 59% of the churches responded reported having no mechanism for employees, members, and vendors to report suspected improper behavior.

The use of anonymous hotlines, usually found on an entity’s website, has been quite successful in the corporate and government environments.  However, this is a tough sell in the church environment as it seems distasteful to most people involved in church.  And that includes me…

I have been (and remain) reluctant to recommend to my church clients taking such a step.

However, one solution I have seen, that may be a good middle-ground is to outsource this function.  There are third parties who provide this service by making available a toll-free phone line and a web address.  Because confidentiality is crucial, all reports go directly to the third party and bypass any nosy people along the way.  As part of the church’s whistle-blowers policy (which I hope your church has) a description of the third party providing these services and the processes to be followed should be included in the church personnel manual.

What do you think about this idea?

Fraud in the Church – What the Survey Tells Us

Posted in: Blog, Effects of Church Fraud, Employee Embezzlement, Fraud Prevention, Internal Fraud, Uncategorized by psk on March 8, 2012 | No Comments

Our church has established a formal program for managing fraud risk.

Almost 63% of our respondents reported that they have not conducted a fraud risk assessment or implemented an ongoing fraud prevention program.  Unfortunately, my guess is that the national average is much higher.  It is hard to pinpoint what might be the cause of this rather high percentage but two reasons are prominent:

• The work load of most church business administrators has them stretched to the limit.  There is barely time to get all of the routine tasks completed on a timely basis much less take on additional projects.

• When they do try to implement a program, many CBAs end up as the Lone Ranger.  In many, if not most churches, fraud prevention is a very difficult proposition to sell.  The biggest hurdle? The mistaken belief that “it can never happen here.”

It is not enough to simply be aware of the threat of fraud or go through the motions of fraud prevention.  Ministries that don’t commit themselves to a strong fraud prevention and detection program will likely end up as victims.

A few key ingredients of a formal fraud risk program include:

• Education of church employees, volunteers and members of the risks of fraud.
• Conducting an initial “brain storming” session whose purpose is to identify potential fraud portals.
• Assigning ownership of fraud prevention processes to key church leaders and employees.
• Implementing a periodic review of transactions.
• Periodic review and assessment of the church’s systems.
• Implementation of an anonymous whistleblower hotline. (More about this in a subsequent post)

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 | No Comments

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.

Two Million to the wrong place?

Posted in: Uncategorized by psk on December 12, 2011 | No Comments

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

$1.5 Million?

Posted in: Uncategorized by psk on October 3, 2011 | No Comments

How does one get away with stealing $1.5 million? This Organization’s Financial Officer stole over a period of seven years. Obviously, adequate controls were lacking at some level in this organization. Read the full story here. Is your church or non-profit in need of a check up on internal controls? Let us help you evaluate and improve your organization’s internal controls.

Sourced from Dominion-Post news

67 Year-Old Man’s 54 Year Sentence Upheld

Posted in: Uncategorized by psk on September 23, 2011 | No Comments

In Indianapolis today, the courts upheld a man’s 54-year sentence for pocketing millions intended for the construction of churches. This man defrauded nearly 3,000 people. Read the full article here. Who do you trust with your money? Is your Church doing all it can to protect its contributions and accounting personnel?

Who’s Looking Over Your Shoulder?!

Posted in: Uncategorized by psk on September 9, 2011 | No Comments

Who’s looking after your Church’s financial personnel? Are the necessary checks in place to, if not prevent fraud, catch it quickly? $51,000 may not be much to lose if you’re at a mega-church, but to a smaller Chuch in Indiana, it was. The full article can be found here.

Source: WISH TV 8 News