Protecting Your Church Against Financial Fraud

Protecting Your Church Against Financial Fraud

In 2014, churches lost an estimated $39 billion due to internal financial fraud. Compare that with the $35 billion that churches spent on worldwide missions in the same period.

The statistics, from the Center for the Study of Global Christianity, illustrate how improving stewardship through better controls can have real impact on any individual church’s objectives.

Church fraud is particularly pernicious because it takes place amid an environment of trust. Even when discovered, there is a reluctance to prosecute. It’s because of that goodwill that most fraud schemes go undetected for so long (median duration is 18 months) and hold so much appeal for would-be thieves.

But trust does not have to displace good sense. The key is to run your church finances like you would run a business, and put certain controls in place that reduce the opportunity for theft in the first place.

A majority of the perpetrators of church fraud are first-time offenders without a criminal history, and most are long-time employees of the church.

The two biggest schemes perpetrated against churches are (1) skimming of the weekly collection between when the totals are collected, counted, recorded and deposited, and (2) fraudulent cash disbursements—an employee writing checks to himself but recording the transaction in church records as going to a vendor.

Additionally, a growing issue is credit card abuse—when an employee or minister charges personal items on the church credit card.

The amounts are not small and the schemes can take a variety of approaches. The median loss in fraud cases against churches is $145,000.

So how do you protect the church’s resources, and improve financial oversight?

• One of the most important steps is to make sure your church has a system of adequate segregation of duties. The person who writes the checks should not be the same person who reviews the checks and bank statements each month, for example. Having two authorized signatures on checks, not using computer-generated signatures and only allowing signature stamps to be in the custody of the authorized signer also can reduce opportunity for fraud.

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SteveThomason@churchleaders.com'
Steve Thomason, CPA is a senior manager in LBMC’s Audit and Advisory practice in Chattanooga.