Is Your Church or Organization Doing Enough to Prevent Embezzlement?

post dateAugust 26, 2015  •   post categoriesUncategorized  •   post comments number4 comments

I would like to open this post where I left off regarding my prior embezzlement topic, Succumbing to Temptation in Church. Hopefully, you have given some thought to how you would have prevented each of those embezzlement acts that were cited in that prior post.
How does your solutions compare to those offered by me? Let’s get started by examining:

Fraudulent Act Number 1:                                                                                                                This individual was able to discreetly write herself 225 duplicate checks by manipulating the church’s payroll records.

The Vulnerability:
She apparently had the authority to generate, sign, and monitor payroll checks without close supervision or oversight.

Lesson Learned:
It is amazing at the number of preventable acts of embezzlement and internal fraud that takes place in churches as result of a single dishonest employee/volunteer having the ability to effect every stage of a critical work process. No single individual should be given the opportunity to perform multiple tasks such as those described above. Otherwise, if that person was a fraudster, opportunities abound for that individual to take advantage of weak systems/controls and commit their devious acts of internal fraud in churches with little, if any, fear of detection. REMEMBER, whether you are in charge of supervising/managing a church’s, business’ or any other type of operation’s accounting-related tasks, there must be a segregation of duties in order to minimize the risk of such crimes. Therefore, this means that the person given the assignment of writing checks should never sign checks without a second-signature inspection/verification of the validly of each check. Furthermore, keep in mind this also means that the person opening mail should not be the same individual who is responsible for recording receivables and reconciling accounts.

Fraudulent Act Number 2:
In April 2013, this perpetrator enrolled herself and her family in the church’s health insurance plan, which required employees to pay 25 percent of the premium for themselves and 100 percent for their family’s coverage.

The Vulnerability:
This employee took advantage of weak internal controls and failed to deduct those payments from her paychecks. The loss to the church for this act was more than $7,600, according to her plea agreement.

Lesson Learned:
Again, adequate prevention goes back to creating/strictly enforcing a practice of segregation of duties. The perpetrator also served as the administrator of this plan and simply failed to deduct those premiums from her paychecks. REMEMBER, thieves work very hard when it comes to seeking out loop-holes in any system they have exposure to. You must ensure that once the employee writes out his/her personal checks for premium, etc. payments, that that employee no longer has any ability to get their hands on their personal check so that it can be destroyed and records compromised.

Fraudulent Act Number 3:
This time the perpetrator enrolled herself in the church’s employee short-term disability insurance plan, for which employees were responsible for 100 percent of the premiums.

The Vulnerability:
Again, serving as the plan’s administrator, she also failed to deduct those premiums from her paychecks, costing the church more than $1,400.

Lesson Learned:
As stated in Lessons Learned in Act #2, minimize your risk by creating/strictly enforcing a practice of segregation of duties.

Fraudulent Act Number 4:
In August 2013, this individual enrolled her son in the church’s daycare program.

The Vulnerability:
Although she paid the daycare director by writing personal checks, once those checks were later turned over to her for deposit into the bank, she deceitfully removed her checks before making the deposit. This cost the church nearly $3,000.

Lessons Learned:
I am beginning to feel like a broken record . . . repeating and repeating. By now, you should get the point! An internal embezzler discovering weak controls and little, if any, oversight will quickly take advantage of the system.

Fraudulent Act Number 5
This perpetrator did even more damage to the church by manipulating its financial records to make it look like the church was current on paying its federal payroll taxes for its employees. (Since she did not keep that money, this action was not considered part of her criminal wire fraud.)

The Vulnerability:
Over the seven-year period that this embezzlement scheme went unnoticed, these fraudulent acts were only accidentally discovered last year when a $58,000 check for the church’s roof repair was returned for insufficient funds. At that point, the church discovered it had $200,000 less in the account than bookkeeping records showed. One other damaging blow took place when it was also discovered that the church had a $2 million tax liability for unpaid payroll taxes. The church is now negotiating with the IRS, claiming that this shortfall occurred because of misdeeds by the business manager; not the church.
Bottom Line: If your church or other organization is being ripped off, it will not come as a huge surprise to authorities. It’s been estimated that U.S. businesses and other organizations lose in the neighborhood of nearly a trillion dollars a year to internal fraud and embezzlement. That’s in the vicinity of $3 billion every business day!

Lessons Learned:
As I have said previously, the methods of these types of theft schemes are generally the same; a ‘trusted’ employee/volunteer betrays their organization by taking advantage of a weak or ignored financial control. The fact is that, wherever people are employed, opportunities abound for a dishonest individual to steal literally hundreds, thousands, or millions of dollars from their employer with little fear of detection! (So, whom can you trust? There is no easy answer to this question, as determining who to trust is a highly complex matter and what I have to say about this subject alone would require much, much more space than allowed within this particular post. Perhaps, I should write a single post on the topic of “Trust”. What do you think? Let me hear from You!)

REMEMBER: You can reduce your risk, whether you are involved with a church, large or small business or other type of organization, you can take away a number of those opportunities by following those Lessons Learned above.
In my next post on embezzlement and internal fraud prevention, I shall provide a few more tips for your consideration.