Part 3 of our ongoing Fraud Awareness in the Church series will look at Conflicts of Interest. 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. We asked churches to respond to this statement:
Our church has adopted a formal conflict of interest policy.
Approximately 30% of the churches responding do not have a written conflict of interest policy.
It is important to point out that a conflict of interest policy is not a fraud preventative in and of itself. The primary purpose of such a policy is to insure that a church or other exempt organization does not transact business with board members and executive level employees to such an extent that private benefit or inurement occurs. When this happens, the parties involved can face some pretty serious repercussions with the IRS. But a conflict of interest policy does play a key role in fraud prevention.
Creating a fraud-free environment involves much more than policies, procedures and internal controls. It also involves setting the proper organizational tone, or atmosphere of financial accountability. One element in the proper tone at the top is the implementation of a conflict of interest policy which limits transactions between the church and its employees, directors and significant contributors.