Part 2 of our ongoing Fraud Awareness in the Church series will deal with Church Governance. PSK in cooperation with the National Association of Church Business Administration (NACBA) conducted a survey to determine the extent of fraud awareness in the church environment.
Where Fraud Prevention Begins
Typically, when a CPA is asked about fraud prevention, he/she will launch into a long dissertation about the importance of internal controls. To most accountants and administrators this is where fraud prevention begins.
Fraud prevention, in my opinion, begins with a strong organizational structure. Internal controls are great, and necessary. But, it is the organizational strength that sees to it that the internal controls are actually followed. Without an adequate church governance program in place, the controls will not be consistent.
I can attest to this personally. The WORST (by far) fraud investigation I have been involved with totaled in excess of $1.25 million dollars. And, the theft did not start until AFTER the perpetrator had convinced the church to adopt a leadership team approach and abandon the more traditional committee approach the church had historically followed.
The leadership team consisted solely of church employees who answered to the culprit. Once this system of NON-ACCOUNTABILITY was put in place, it was a simple proposition to dismantle what little controls the church had once had.
KEY – A strong church governance, which is characterized with good stewardship, accountability and transparency, is the first line of defense against fraud attacks.
Next post we will begin taking an in-depth look at some of the questions we asked our participants to respond to, starting with Conflicts of Interest.