Think Acts of Embezzlement Are Not Thriving in Houses of Worship? (E-4)

post dateSeptember 5, 2017  •   post categoriesUncategorized  •   post comments number0 comment

Think acts of embezzlement are not thriving in houses of worship throughout the United States? If you answered no, well think again! To help prove my point, let’s start by simply “googling” Church Embezzlement, and don’t be surprised to find results reading somewhere around 499,000. Next, let us take a brief look at five church-related embezzlement cases that captured the attention of the media over the past three months:

The Alarming Facts
• Texas, August 22nd: Part-time bookkeeper admitted to theft of $80,000 from the church’s bank account over two-year period. An audit revealed $90,600 stolen;
• North Carolina, August 14th: Church usher accused of taking an undisclosed amount of money;
• North Carolina, August 22nd: Former clerk of church charged with embezzlement of $14,584.33 over a period of three years;
• West Virginia, July 27th: Pastor of church arrested for embezzling more than $10,000 in church funds over period of 1.5 years. Police investigation revealed that “someone noticed some discrepancies as to what they had given the church and their tax statement.”
• Georgia, June 21st: Pastor sentenced to 28 months in prison for stealing more than $200,000 in donations from his former church over a six-year period.

Real-Case Example
With those above five cases out of the way, let us take a close look at what can happen when church leadership gives a single employee too much control over too many high-risk functions:
On August 25th, a Wisconsin woman pled guilty in federal court for embezzling approximately $832,210.00 from the church where she had worked as secretary and accounting clerk for years. Prosecutors said this crime took place over a period of ten years and the stolen funds were used for gambling at nearby casinos.
Here are the facts obtained from official court documents: As part of her duties, the perpetrator was responsible for retaining count sheets, creating deposit slips for deposit of church collections into the church’s bank accounts, and creating and keeping accounting records of church collections and expenditures. The perpetrator created (1) false entries in accounting records and (2) created false deposit slips purporting to represent the accurate amount of church collections for a given week. These deposit slips represented a lower amount of church collections than the actual church collections. Furthermore, she (3) discarded count sheets that documented the accurate church-collections for a given week.
Prior to discovery of this embezzlement scheme, the Diocese had hired an accounting firm to conduct a procedure audit on its parishes. As part of its “procedure audit [review]”, the accountants relied on internal control questionnaires completed by parish staff to determine whether a parish was complying with diocese accounting policies and procedures. Believe it or not . . . this perpetrator was this church’s sole employee responsible for completing the internal control questionnaire for her church. On the questionnaire she falsely represented (i) individuals counting church collections were responsible for depositing funds into the church’s bank accounts; (ii) the accounting clerk was not responsible for collecting and counting money; and (iii) the accounting clerk reconciles count sheets with deposit slips.

LESSONS LEARNED
I have learned over my four decades of research in all types of organizations that while actual acts of embezzlement/internal fraud and motivations for these crimes may differ, the individual stories always have a common thread . . . a trusted employee betrays their employer’s trust.
I recognize that you can “google” and find all types of theft prevention tips on the Internet. So I am only going to make a single, but very important, recommendation. Next, I shall ask you to accurately answer six (6) questions that should help your church get a reasonable snapshot of its risk to embezzlement/internal fraud.

My recommendation: Separation of duties within the church’s financial area should receive priority attention. Ensure that no employee or volunteer has the ability to affect every stage of a particular financial process by concealing errors or fraud as part of their routine duties. There should always be an adequate separation of duties between those who perform accounting tasks or control activities and those responsible for assets. This single strategy is one of the very best internal controls that any organization can put in place to minimize your risk to embezzlement by a dishonest worker.
Now, with that said, below is a simple six-question test that should help to measure the effectiveness of your church’s procedures relating to the safeguards and control of financial assets. The following are six Segregation of Duties “agree or disagree” questions. Keep in mind that any single Disagree response should serve as a warning sign that your financial procedures may be at risk.

1. At least two unrelated cash collectors/counters are required for every service, and each prepares the deposit slips. Each counter then verifies the other’s form. Agree Disagree

2. No single employee is allowed to both process and record a financial transaction. Agree Disagree

3. The accounting clerk/treasurer does not collect and count money. Agree Disagree

4. Surprise leadership spot-check “audits” are regularly conducted within the financial area to ensure proper compliance to church policies/procedures. Agree Disagree

5. The same individual(s) who prepares checks does not reconcile bank statements. Agree Disagree

6. No single individual has ability to process the payroll, approve it and enter its data into the accounting system. Agree Disagree

Hopefully, your church passed this simple test with “flying colors”. However if it didn’t, there’s important work to be done. Take note, the above questions are only the starting point. Additional safeguards should include: rotation of cash counters; employee and volunteer procedural training of those who assist with church funds; audits performed by outside auditors on a regular basis; drop-deposit safes only opened with two people present and combination given only to limited number of individuals (as an extra safeguard, consider that those having safe combination not have key access to safe room); background and credit checks performed on all employees and volunteers having access to funds; and bank reconciliations completed by an independent person.

For those of you, who feel that I may have listed a few unnecessary extra safeguards, please keep in mind that over my four decades of research I have seen much theft and abuse within this area. The cunning ways and imaginations of embezzlers, or any thief for that matter, are often greater than most leadership team’s ability to foresee even the slightest possibility of a fraudulent act. For those who think embezzlement cannot take place within your church, you are likely sadly mistaken. Be forewarned, it can happen!

Has your church experienced an act of embezzlement? Sharing your story could help prevent this crime from happening to others. Let us hear from you!

Spread the Word
If you haven’t already done so, please forward my blog site (http://jacklhayes.com/blog/) to your business friends and associates. In addition, I particularly encourage any college student taking courses in business management, accounting and/or entrepreneurial studies to also join-in. These are lessons that must not be ignored.

The information provided in this post is intended for educational purposes only, and does not constitute any form of legal advice. No further representation is made.