Establishing an organizational structure is the first step in combating fraud, however it is not enough. Key: In order to stay within reasonable boundaries, churches must take the time to carefully document their management structure and practices. Churches that fail to do this do so at great risk.
A written organizational plan serves several purposes.
For this discussion, I have grouped documentation into three categories.
Documents specifically aimed to reduce fraud should also be included in a church’s policy and procedure portfolio. Written policies should be created that address conflicts of interest, business expense reimbursements to employees and volunteers, credit card use, benevolence, and building and property use.
“The royal secretary and the high priests…counted the money” (2 Kings 12:10)
“…the chest was brought in by the Levites… (2 Chronicles 24:11)
These two passages are a good illustration of what accountants refer to as “a proper segregation of duties”. What makes accountants breathe easier is for their clients to distribute bookkeeping and administrative tasks to as many people as possible. The passage from 2 Kings tells us that the royal secretary and the high priest came together and counted the money and placed the funds in bags. Although only two individuals are mentioned, it would be safe to assume there were probably more. Of the two mentioned, one represented the king, and the other the priesthood. This appears to be an ancient version of segregation of duties and checks and balances.
Many churches need to take this practice to heart. Unfortunately, often for reasons outside of their control, churches and pastors don’t employ this procedure. Often because of expediency or lack of funds, one person will be given all of the financial tasks – from start to finish. As long as the person is honest there is usually no problem. But, other times…
Key: Pastors should know enough of the details of their church organization to make sure that their church is using Jehoiada’s model. Churches should appoint teller teams to count the money. The teams should be made up of multiple members who serve in rotating terms. Also, the business office tasks should be split between as many individuals as possible. For example, employees who assist in counting the offerings should not be involved in posting tithing information to individual member giving records. Also, individuals who prepare and write checks should not have check signing authority or be in charge of mailing the bills. Because of budget constraints and the cost of employee benefits, many churches are beginning to address this problem by outsourcing some office tasks to professional organizations.
Segregation of duties should not be limited to bookkeeping tasks but should also extend to church management and organization as well. A church should employ a team concept for crucial duties such as the setting of compensation for church staff, budget development, and long-range planning.
The verse from 2 Chronicles reminded me of a simple test I advise my clients to apply to themselves to determine, on a surface level at least, if they have any weaknesses in their organizations. Notice that the passage states that the chest was transported by the Levites – plural. Key: Counsel I have given to many pastors and business administrators is to look closely at how money flows into and out of their church. As they review their procedures, I advise them to make a list of who is involved in the process. The ultimate question I instruct them to answer is this: “Is the church’s money ever in the possession of one individual, no matter how short a period.” (I have knowledge of one situation in which the funds were in one individual’s possession for no more than thirty seconds. Unfortunately that was all the time needed!)
Every Sunday morning, in churches across the nation, money is being transported from the sanctuary to the counting room, from the counting room to the safe, and from the church to the bank by sole individuals. This is a threat to the church. But, it is also a threat to the carriers. It only takes a few seconds for a thief to swoop in, grab what’s needed, and soar off. The best defense is to devise a system where the funds are never, even for the shortest of moments, in the possession of one individual. In doing this, the church should include all funds, special events, program fees etc., as well as the Sunday offering.
Verne Hargrave is the Church and Ministry partner at PSK LLP and author of the book, Weeds in the Garden.
Let me be blunt. The fact that a church has never had an incident of fraud is due to one of two things: luck or planning. Needless to say, the odds of successfully avoiding fraud are much higher with the latter approach. If a church has been relying on the first approach and has never had an incident, it should be congratulated for its good fortune. But, the church should also be reminded that its good fortune rests on the fact that either the crooks have not made it to their church yet, or they just haven’t been caught. In time, one or both of these things will probably occur.
To increase the chances of avoiding fraud, the best practice is to plan and organize. This is accomplished by implementing a strong organizational structure within the church.
Key: Evidence points to the fact that churches with little or no organizational structure are frequent targets of fraud. The reason is rather obvious; many fraudsters are much better students of management theory than the average church. They can spot an “easy mark” a mile away. Crooks can also spot a well-defended church and will avoid it. Greener pastures are very easy to find because well protected churches are significantly outnumbered by poorly managed congregations. A crook-resistant church usually develops a strong organization in three areas.
“The priests who guarded the entrance put into the chest all the money that was brought to the temple of the LORD.” (2 Kings 12:9)
Almost in passing, this verse mentions that the money collecting process was being protected. Priests were posted at the entrance to the temple where the collection chest had been placed. These priests’ job was to “guard” this entrance and the money. They watched over the process to insure that everything was done in an orderly manner. When I read that one word, “guarded”, I was reminded that, even in the church house, security measures are necessary.
This is a frequently ignored fact. Many churches operate under an “it could never happen here” philosophy. This position is usually defended with some of the following famous last words: “We are all Christians here.” “We know and trust each other.” “It would be offensive to watch over our volunteers like a prison guard!” “We might as well go ahead and call them crooks to their face!”
While well meaning, these phrases ignore one basic fact. All men and women, even church goers, are flawed creatures. All of us are susceptible to falling to temptations of various types. And many are tempted to take things that belong to others, even at church. This situation can be exacerbated when a church has an employee with severe economic needs due to personal bankruptcy, job losses or family health issues. Security is important. Even at a church. Security concerns must be addressed as part of the church’s financial accountability program. But maybe not for the reasons most people think.
Church security measures are designed to provide protection in three main areas.
The broadcasting of bad news has an impact, and the impact takes place both inside and outside of the church. Inside, some church members’ faith in God is weakened by moral failure within the church, and some discouraged individuals may even leave the church. To those outside the church, the bad news may reaffirm their belief that there is no truth to the claims of Christians. Their reaction is to never enter a church. This is why security is important. Money is secondary. It’s the message that can be tarnished, and every church should take care to “guard the entrance” just as the priests under Jehoiada did.
Verne Hargrave is the Church and Ministry partner at PSK LLP and author of the book, Weeds in the Garden.
Click on the following link to read the news story:
http://www.theaustralian.com.au/news/features/let-us-audit/story-e6frg8h6-1225955788550
Click on the following link to read the news story:
http://www.contracostatimes.com/california/ci_16661016?nclick_check=1
Financial “bad behavior” is becoming rampant in the church. You would have to be living in a cave to not recognize this. There is not a week that goes by without another headline appearing that tells the sad story of a “trusted” church employee “gone bad”.
The good part of this, if there is a good part, is that the news is getting to be so nerve-wracking that churches and church administrators are finally beginning to recognize that a problem exists. The two most common questions suddenly being asked are, “What can we do?” and “Where do we start”? Unfortunately, financial misbehavior in the church is very pervasive and the variety of methods of abuse seemingly unlimited, causing answers to these questions to be quite elusive to the average church administrator.
When faced with such a daunting task, one good practice is to first call a time out. Before doing anything rash, it may be best to take a step back and gain a more comprehensive view of the situation. Added perspective can result in an honest assessment of what the church may face. More importantly, challenges are easier overcome when they are broken down into manageable pieces.
In our next series of posts we will present ten key factors to help gain some perspective on effective fraud prevention. By addressing these factors deliberately, one at a time and preferably in order, churches can increase their effectiveness in protecting themselves from the danger of financial fraud. The key factors we will be discussing:
Several years ago the Auditing Standards Board of the American Institute of Certified Public Accountants issued a new auditing standard addressing the auditor’s response to fraud. Since that time auditors have been including in their management letters, suggestions that their clients perform fraud risk assessments of their organizations. To date, very few have done so. The main reason given for not doing so is a result of something I mentioned at the beginning of this chapter. Because the challenge of fraud prevention is so vast, many just don’t know where to begin. Hopefully, our discussion of these ten characteristics will do just that; provide a starting point to achieving strong fraud resistance.
I am a “youngster” when it comes to accounting, and especially accounting for churches and non-profits. One thing that has caught me off guard about the inner world of some non-profits (some churches!) is their excessive desire for funds and financial position. Most churches seem to get it right; some do not. In my subconscious I am often asking, “Does this church that I am auditing really know and love Jesus? Do I see them loving their co-workers and loving me and my fellow auditors?” This has caused me to think more about my own faith, and about what the Lord requires of me. It seems that Jesus is concerned with the state of our hearts. Jesus says, “No one can serve two masters. Either you will hate the one and love the other, or you will be devoted to the one and despise the other. You cannot serve both God and money.” (Luke 16:13). We desire money personally because we believe it brings security and power. Our churches are vulnerable to the same desire. We are a vulnerable breed. So what is our (my) motivation for loving Him above money and the sense of security that it brings? His Love, which is beyond my comprehension. I have asked myself before, money in hand, “Does this piece of green paper love me? Is it alive, and able to take care of my deepest needs?” Absolutely not. Compare that with God, who came to this earth, suffered incredibly, and tasted death for us. He calls us brothers, friends, righteous; all because of what he has done. He gives us hope that this world is not all there is. And that’s not all. When we realize our hearts are not what they should be, we can cry out to him, the one who makes everything right. “Create in me a pure heart, O God, and renew a steadfast spirit within me” (Psalms 51:10).
The management and accounting for money is essential for us personally and for the Church. We are the Lord’s kingdom on earth; this task should be performed with excellence! But let us not forget that this is not the reason we are here. After all, if we are not living for the Lord and building His kingdom today, what are we here for?
In summary, money and accounting for it is not our end goal. Christ is. Let us perform our sometimes-menial accounting tasks with excellence as we remember that He loves us so much, and that He desires our hearts’ affections.
Justin Baldwin
“He placed it beside the altar…” (2 Kings 12:9)
Jehoiada, the High Priest, placed the chest by the altar. I have no way of knowing of course, but I get a sense that this was intentional. As I read through the passage two thoughts came to mind. Perhaps Jehoiada placed the collection chest close to an altar to remind the people that giving money is a spiritual act. Also, maybe Jehoiada placed the collection point so close to a point of worship to remind the people that the work to be done was spiritual. If the spiritual aspect of all of this activity was forgotten or lost, serious repercussions might follow. For instance, the work would once again not be accomplished, and the people would remain without a place of worship. It was imperative that the spiritual not be lost in the financial.
It has been my observation that it is very tempting for churches and their pastors to lose a grip on the spiritual as they grapple with the fiscal concerns of their congregations. There are a myriad of pitfalls and trap doors pastors can fall into or through. One trap is by going overboard on one of our earlier principles; paying attention to the details. When paying attention to the details, a pastor also needs to recognize that it is possible to get bogged down in them as well. He should be careful to make sure that he does not major on minor things. The pastor who does this will swiftly lose perspective and not be able to see the forest for the trees.
You may think it strange that this next pitfall is coming from an accountant. Nonetheless, spiritual matters come first, and churches sometimes put too much faith in their financial statements and not enough faith in God. The numbers may say no, but God may be saying “Go!” If that is the case, then the recommendation of this CPA is you had better go. I am not encouraging anyone to do foolish things, and some people have been pushed into risky ventures by being chided for their lack of faith. But the pastor must let God do the directing, not the accountants.
The most damaging trap though is one of attitude. Often a pastor and his leadership team fall in love with their financial methods. They rely too heavily on the management and leadership gurus currently in vogue and try much too hard to emulate corporate America. In some planning meetings I have been involved with, it has been difficult for me to determine if the discussion was about planting a new church or opening a new McDonalds! There was much talk about location, visibility and branding, but not so much about where God was leading.
Key: The lesson here is that as a minister and his church enter into financial planning they need to incorporate spiritual matters as they go. And I mean much more than simply opening up finance committee meetings with prayer. Every step of the way should be bathed in prayer and every financial decision should be quantified not solely in dollars but also in life impact. The church should not simply look at budget numbers as mathematical functions. It should never be forgotten that there are people represented behind each number on the financial statements. These numbers should not be analyzed as simply a percentage of revenue but as to how much impact on the lives of people they represent.
Key: Another suggestion is to view the budget from a spiritual perspective. In the business world a budget is simply a financial tool, something to measure how successful the company is or is not. But, a church budget, when developed from a spiritual perspective, is much more than a financial tool. It has much more meaning than being a report to compare this year with last year, or expected versus actual. A church’s budget is the church’s mission statement for the year, expressed in dollars. Keeping this in mind should result in a spiritual tone being the dominant theme of the church’s business meetings.
Finally, if giving is an act of worship, then by extension, the counting, recording and reporting must be too. The spiritual purpose of these acts must be kept in mind. As opposed to the business world, the purpose of reporting the financial results is not to measure success as the culture does, which is usually net income. The reporting of a church should be reflective of the church’s impact on the culture. If the reports are designed and used correctly, the church can measure its effectiveness by reporting who is being helped. More importantly, the church can also learn who is being missed so that appropriate changes can be made. This is a reminder that church financial decisions should not be about saving money. They should be concerned with saving lives.
Verne Hargrave is the Church and Ministry partner at PSK LLP and author of the book, Weeds in the Garden.
Site Design By 
