“We’re ok. We performed a fraud risk assessment two years ago…”
First, this church should be commended because very few churches ever get around to assessing its susceptibility to fraud. But, determining exposure to fraud at one period in time is not sufficient. Fraud protection is not a one-time event. It is an ongoing process.
There are a few disturbing facts hidden within this statement:
First, fraud protection is not really a priority of this church’s management. This church was able to put off any effective fraud prevention for two years; obviously other things seem to be more important.
Second, even though this church conducted an assessment they are not using it. The purpose of a fraud risk assessment is not simply to gain information about how the church stands. It is to take the knowledge gained and apply it on a daily basis to the operations of the church. Kind of similar to Bible study isn’t it?
Third, things change. What worked two years ago may be completely obsolete now. The crooks are hard at work trying to figure out ways to take your money.
You should be at work too!
Interested in an objective Fraud Risk Assessment to complement your independent audit? Contact us today about scheduling one of our many Best Practice Engagements at at (817)664-3000 or email us using our contact form.
“We do an audit every year. Our auditors would have told us if anything was wrong…”
One of the mysteries of the Enron scandal was how could an auditing firm issue a clean opinion on the company only to have it collapse shortly after. One of the reasons, in my humble opinion, is an expectation gap that exists between the accounting profession and the public.
While it is true that an audit is “one” brick in the wall of fraud protection, discovering fraud is neither the primary nor the only task of the auditor. CPAs are charged with assessing the risk of fraud of their audit client, but their primary task is to express an opinion of the financial statements of the client taken as a whole. So, if having an outside audit is the only form of fraud prevention a church engages in, then the church is woefully unprotected.
Statistics generated by the Association of Certified Fraud Examiners bear this out. Based on actual fraud cases reported to the ACFE, a certified audit was one of the least effective means of fraud detection. Based on reported cases the Association reported that:
49% of the fraud cases were detected by anonymous tips
25% were uncovered by the internal controls of the victimized organizations
11% were discovered by accident
However, external audits only accounted for 13% of the fraud cases discovered, not much above the fraud cases discovered by pure dumb luck.
The lesson is this. Don’t depend SOLELY on your auditors to prevent fraud.
Interested in an objective Fraud Risk Assessment to complement your independent audit? Contact us today about scheduling one of our many Best Practice Engagements at
One of the mysteries of the Enron scandal was how could an auditing firm issue a clean opinion on the company only to have it collapse shortly after. One of the reasons, in my humble opinion, is an expectation gap that exists between the accounting profession and the public.
While it is true that an audit is “one” brick in the wall of fraud protection, discovering fraud is neither the primary nor the only task of the auditor. CPAs are charged with assessing the risk of fraud of their audit client, but their primary task is to express an opinion of the financial statements of the client taken as a whole. So, if having an outside audit is the only form of fraud prevention a church engages in, then the church is woefully unprotected.
Statistics generated by the Association of Certified Fraud Examiners bear this out. Based on actual fraud cases reported to the ACFE, a certified audit was one of the least effective means of fraud detection. Based on reported cases the Association reported that:
49% of the fraud cases were detected by anonymous tips
25% were uncovered by the internal controls of the victimized organizations
11% were discovered by accident
However, external audits only accounted for 13% of the fraud cases discovered, not much above the fraud cases discovered by pure dumb luck.
The lesson is this. Don’t depend SOLELY on your auditors to prevent fraud.
Interested in an objective Fraud Risk Assessment to complement your independent audit? Contact us today about scheduling one of our many Best Practice Engagements at at (817)664-3000 or email us using our contact form.
“Jehoiada the priest took a chest and bored a hole in its lid…” (2 Kings 12:9)
Frustrated by the lack of action, Joash takes matters into his own hands. At the king’s command a chest was made and a hole bored in its lid. The chest was then placed by the altar and positioned in such a way that anyone entering the temple would pass right by it. Joash was giving his priests a lesson in fundraising.
I find it interesting that he didn’t raise money with mass appeals. We see no one making speeches in this passage. No mention of pledge cards and no attempts to raise funds by laying a massive guilt trip on the people. He simply established a clear, well defined way for the people to give to God’s work. And, it worked. The money was raised and the temple was restored.
I didn’t learn this principle from a church accounting handbook or by consulting with capital campaign experts. I served as a bi-vocational minister for a number of years. My place of service was in a disadvantaged part of our city, a place never included in any chamber of commerce brochures boasting of the merits of living in our community. Most of our church members were poor, many extremely so. As a result, I was reluctant to talk about money, much less ask these folks who had next to nothing to give me some of the little they had. In fact, we never asked for money, discussed money or passed an offering plate. In my “common sense”, practical CPA perspective, I rationalized that it would be embarrassing to ask them to give back some of the assistance money we were giving them in the first place.
It was not until deep into my ministry that I realized I was doing my people a major disservice. By not asking for money, (Or, rather not giving them a chance to give) I was not helping my people at all. In fact, I was hurting them. As their pastor, I was robbing my flock of an opportunity to participate in Kingdom work.
When I came to my senses, I made some changes. We placed a small basket in a prominent place. We didn’t pass it around during our services. We simply told the people it was there. This gave our people a chance to participate in an act of worship. And the people gave. Not a large amount, as Wall Street measures things, but by Kingdom standards their gifts were an immense treasure.
KEY: The principle here is that as leaders of the flock, pastors need to be sure to give the people the opportunity to give. Because “they are always asking for money” is a frequent excuse given by non-church goers for avoiding church many are reluctant, like I was, to ask or even talk about money. However, there is some research indicating that “money talk” really is not that much of a factor in people avoiding church. (Feeling unwelcome and lack of relevance seem to be more likely the cause of church avoidance!) What I have learned from my own experience is that an open discussion of money and a transparent accountability system results in confidence and trust by the congregation. If stewardship is taught as one part of a strong discipleship and worship program, and not just a once a year or on an as needed (crisis) basis, the church congregation will not fear, detest or dread the topic. They will embrace it.
Verne Hargrave is the Church and Ministry partner at PSK LLP and author of the book, Weeds in the Garden.
“Our Finance Committee looks at everything…”
On the surface, this sounds reasonable. But, it all hinges on how one defines “everything.” The success of this statement in preventing or discouraging fraud depends totally on exactly what the finance committee or elders are given.
Often, in the interest of expediency, those charged with the financial oversight of a church are simply given summary reports of their church’s financial activity. And many times, these summary reports consist of financial highlights generated by spreadsheet software like Microsoft Excel. These programs are very powerful and have their place in the financial operations of a church, but they also have two significant limitations:
First, they are extremely easy to manipulate. Spreadsheets can be changed at will and their accuracy is totally dependent on the integrity and competence of the preparer.
Second, spreadsheets leave no “audit trail” like formal general ledger accounting systems. An embezzler can change numbers indiscriminately without leaving any “fingerprints.”
These two features make it easy for a thief to steal and cover themselves as long as church leadership is content to receive only a summary of their church’s financial results. In order to shield against fraud, the financial records presented to a church’s finance team must be comprehensive. At a minimum, the financial reports given to leadership should include:
A statement of financial position (Balance Sheet)
A statement of activities (Income Statement or Budget Report)
A statement of restricted fund activities
We caution against providing TOO much data, as it can have the tendency of being only cursorily reviewed. That notwithstanding, more can clearly be added to this list, even some helpful spreadsheets from Excel. But anything less than the minimum opens the opportunity for a fraud portal…
Interested in finding out how your reporting package measures up? Contact us today about an internal financial reporting review or other Best Practice Engagements at (817)664-3000 or email us using our contact form.
Let every priest receive the money from one of the treasurers, and let it be used to repair whatever damage is found in the temple." But by the twenty-third year of King Joash the priests still had not repaired the temple. (2 Kings 12:4-6)
Joash decided to restore the temple. He instructed the priests and Levites to go out from Jerusalem to the people and collect funds for the work. But the priests were not successful. For whatever reason, the work was not even begun. Commentators have given many reasons for this failure:
- Perhaps it was simply that the priests were lazy.
- Or maybe it was due to poor training; the priests were trained in religious observance, not fundraising.
- Others have ventured that the priests were reluctant to go out to the people because they connected this act with taking a census, something that got King David in a lot of trouble.
But, one explanation that strikes home to me has an application to pastoral leadership and fiscal health of the church. Joash had been preceded by a thoroughly corrupt regime. The people had witnessed gross waste on the part of both the government and the priests. Perhaps the people held back when asked for money because they could not trust that it would be used wisely. Poor stewardship led to the reluctance of the people to give any more money.
This happens frequently in the contemporary church. Lack of guidance, lack of attention to detail and other types of church mismanagement have wide-ranging consequences.
- At best, the church can expect sloppy record keeping, confusion, the inability to make timely and sound decisions, unattained budgets, and an uninformed congregation. (When an uninformed congregation suddenly becomes “informed”, it can be very dangerous to the career of the aspiring pastor!)
- Poor fiscal management can also result in overspending, inappropriate spending, non-compliance with tax laws and abuse at the hands of an embezzler who has spotted a ripe opportunity.
KEY: It only takes one or two of these situations to cause a congregation to lose faith in their leadership, and when this happens, giving is often impaired:
- Because church members feel they can no longer trust their leaders they may hold back on their giving or try to direct their gifts to their favorite budget areas.
- Others may resort to excessive “designated giving” to support projects they care about.
- Ultimately, some may simply leave the church.
The first reaction many have to this is that this behavior is unchristian and shouldn’t happen in a church environment. And I can’t disagree with that. Nevertheless, this is what frequently happens. Most importantly, knowing this does not lessen the impact. Any one of these changes in giving patterns can be devastating to a church by itself. The best way to avoid this situation is to build and maintain trust throughout the church. This is done by implementation of a strong system of stewardship and accountability.
Verne Hargrave is the Church and Ministry partner at PSK LLP and author of the book, Weeds in the Garden.
The Title "Poor Fiscal Management = Poor Giving"1
[1] Excerpt from, Practical Aspects of Pastoral Theology. Christopher Cone Th.D Ph.D (Editor), Tyndale Seminary Press. http://www.tyndale.edu/
“We set up a separate bank account for each special fund to make sure the money goes where it is supposed to go…”
Over the years, we have seen many churches take this approach. Rather than using their church accounting software to take care of measuring and tracking the restricted funds, they either open separate bank accounts or worse, divide one bank account among several different general ledger accounts. I have detected two main reasons some churches take this approach:
1 – They have been burned in the past by funds designated for a specific purpose being spent for something completely different. When it came time to accomplish the designated purpose, funds were no longer available to accomplish the task.
2 – They simply don’t trust themselves. The temptation to redirect the funds is too great. So, the thinking goes, “we will set up a separate account to keep these dollars safe”.
Churches who choose this path seldom realize that by closing one door, they inadvertently open up a much more sinister portal: they create an environment for a con artist to conduct a very expensive shell game. With multiple bank accounts and limited controls, an embezzler can shuffle funds among the accounts to create a dense smokescreen, making detection extremely difficult.
The best practice? Have as few bank accounts as possible coupled with strong internal controls and recordkeeping.
Interested in finding out how your controls measure up? Contact us today about our internal control assessment and other Best Practice Engagements at (817)664-3000 or email us using our contact form.
The high places, however, were not removed; the people continued to offer sacrifices and burn incense there. (2 Kings 12:3)
The writers of Kings and Chronicles usually followed a pattern of describing the character of each king. The descriptions go one of two ways:
- Bad kings were described as those who “walked in the ways of Jeroboam”.
- Good kings were said to have done “what was right in the eyes of the LORD.”
The latter is the description of Joash. But, for most of the kings, even the “good” ones, this character summary is followed with another significant phrase: “However, the ‘high places’ were not removed.”
Joash was guilty of the same thing. Joash was diligent in cleaning the temple. Joash was also diligent in having the temple operating as it was intended. As a result, through his leadership, the nation was cleaned up and began operating as it was intended. This was something desperately needed due to the pollution the country suffered at the hands of the wicked Athaliah. Unfortunately, Joash was not diligent in everything. He failed to do anything about the “high places”.
The high places were a consistent stumbling block to the Children of Israel. These sites, at the crest of hills and mountains, were centers of pagan worship. Some believe that during the reign of Joash these places were being used in some form of Jehovah worship. Even so, this would be a mistake because Moses had clearly laid out how Yahweh was to be worshiped and it is doubtful that these places were part of God’s plan. Joash was not paying attention to detail, and eventually this led to trouble.
There is a much more ominous tone to these high places because they were usually associated with repulsive pagan rituals. Even if the people were engaging in Jehovah worship, the original use of these places would be fresh in the minds of the people. What Joash was doing by ignoring the details was giving Satan and his pagan rituals a toehold in the land. This had disastrous results, as it wasn’t long before the people lapsed into apostasy.
Obviously, a church is probably not going to fall into apostasy over poor financial practices but a financial illustration can easily be drawn from Joash’s experience. Far too many ministers take an “I can’t be bothered with details!” approach to their church’s business affairs. What they often say to their staff is that they are too busy or they need to spend time on “more spiritual” matters. In other words, they can’t be bothered with financial details. Occasionally, these are the last words of some pastors; at least at that church.
KEY: Not paying attention to the church’s financial matters can bring about extremely negative results.
- First, it is an example of poor leadership. If the pastor doesn’t care, odds are the staff won’t care either, resulting in poor financial practices throughout the church.
- Second, if a pastor is not paying attention, problems that at one point could have been easily solved can become insurmountable. As the leader of the congregation, the pastor is often held responsible for the poor economic health of the church, even though he was not directly involved. Actually, because he wasn’t directly involved may be the very reason pastors get into this type of difficulty.
What I am not suggesting is for the pastor to be the CFO of his church. What is being recommended is that the pastor should simply pay attention to the financial health of the church. Here are three suggestions of ways that a pastor can stay connected to and be aware of the financial “details” of his church.
- First, repeating the first principle, have a financial mentor.
- Second, with the help of the mentor, learn how to read and interpret the church’s financial statements.
- Third, be supportive of the administrative staff and remember that their job is not to inhibit the ministry but to protect it.
Verne Hargrave is the Church and Ministry partner at PSK LLP and author of the book, Weeds in the Garden.
The Title "Pay Attention!1
[1] Excerpt from, Practical Aspects of Pastoral Theology. Christopher Cone Th.D Ph.D (Editor), Tyndale Seminary Press.
“We have rotating count teams with clear rules that account for every penny we collect in offerings…”
While this statement is not inaccurate, it is short-sighted. When churches think of fraud, Sunday offering protection is usually the first thing that comes to mind. And as a result, most churches do a very good job in protecting Sunday receipts. In fact, Fort Knox may be an easier target than some churches I have visited who have ratcheted down tightly their Sunday collection procedures!
But, if this is all a church does in protecting itself from fraud, they are at risk. There are at least two significant reasons:
First, Sunday offerings are not the only time cash comes into the church. Many churches with air-tight security over Sunday collections completely ignore what happens from Monday through Saturday. And in many churches, the amounts can be substantial, including day care fees, special event fees such as banquets and conferences, food sales, book sales, fund raising revenues, etc., etc., etc. Also, tithes and offerings that are dropped off during the week often circumvent the entire teller process and instead land directly on the bookkeeper’s desk.
Second, cash inflow is not the only place where embezzlement takes place. In fact, a case can be made that the larger cases do not involve the cash inflow processes, but the outflow. The Association of Certified Fraud Examiners backs this assertion with statistics showing that while skimming (taking money before it is recorded) makes up 20% of reported fraud cases; check tampering is even more prevalent, making up 25% of the cases. In addition, fraudulent expense reports and payroll scams chip in another 29% for good measure.
So, churches with tight controls over Sunday cash receipts should be commended for their efforts, but also reminded that effective fraud prevention includes extending this vigilance to the other means of inflow, and the outflow side as well.
If you’d like to hear more about our Best Practices Review or one of the many other services we provide, please contact us at (817)664-3000 or email us using our contact form.
“Joash did what was right in the eyes of the LORD all the years Jehoiada the priest instructed him.” (2 Kings 12:2)
Joash “came to power” at the ripe old age of seven. His life can be divided into two stark contrasting periods:
- The time when Jehoiada was high priest. – Joash was instrumental in restoring the temple and reinstituting its services.
- The period following Jehoiada’s priesthood – Joash was instrumental in reinstituting the worship of Asherah poles and idols
What went wrong?
Joash’s life teaches two important lessons about mentoring. First, his life illustrates the tremendous impact a godly mentor can have on a leader. As verse two tells us, as long as Jehoiada was there to coach and counsel Joash, Joash did what was right. While Jehoiada was alive, Joash inspired the people to give sacrificially to the temple restoration campaign. With the funds in hand he was able to see that the temple was restored from neglect and vandalism. Most importantly, with Jehoiada at his side, Joash was able to reinstitute the long neglected burnt offerings.
However, Joash’s life teaches a lesson; what can happen when a leader has no mentor. Like Joash, a leader with no mentor can easily succumb to bad advice. After Jehoiada had died, Joash “listened to others”. He abandoned the temple and shortly thereafter his people fell to worshiping foreign gods.
KEY: A good financial mentor is an invaluable resource to a pastor. This is true regardless of the experience level of the minister. From just beginning in ministry to closing in on retirement, every pastor, at every stage of life, needs financial counsel they can rely on. Unfortunately, most pastors have limited knowledge and experience about money and management. Because of these limitations, no pastor can afford to play “Lone Ranger.” Someone a pastor can confide in and rely on is essential. But, care must be exercised in selecting the right guide.
- A mentor should not be chosen on financial ability or business acumen alone. The mentor needs to be someone on a spiritual journey himself. Just because a person is good in business doesn’t mean he will be good for the church. One thing needs to be remembered; the pastor needs to seek out godly business counsel.
- A pastor also needs to choose someone who will shoot straight with him. “Yes men” will get you nowhere. (Actually they will get you somewhere you don’t want to be!) Good counsel is sometimes painful, but it is still essential. A pastor needs someone who will give him the truth, the bad as well as the good.
Noted theologian Dr. Howard Hendricks describes this type of person as a Barnabas. “Someone who loves you, but is not impressed with you.” In short, someone who will shoot straight with you.
With these ingredients, a mentor can help the pastor interpret the financial times of his church. A mentor will help guide the minister into good decisions and assist the pastor in “doing what is right.”
Verne Hargrave is the Church and Ministry partner at PSK LLP and author of the book, Weeds in the Garden.
The Title "Mentors Matter"1
[1] Excerpt from, Practical Aspects of Pastoral Theology. Christopher Cone Th.D Ph.D (Editor), Tyndale Seminary Press. You can find the book at Amazon.com
(About Church Business)
It is extremely difficult but I try not to bring my work home with me. However, my thoughts often drift to finding ways to help churches while not in the workplace. For example, occasionally during my personal Bible study time I will see examples of good, as well as bad, financial behavior exhibited in the pages of Scripture. The story of King Joash in 2 Kings 12:1-16 and 2 Chronicles 24:1-24 is one example. On one occasion, while reading these passages I saw ten principles or maybe I should call them “best practices” of church financial integrity.
First, however, I wish to beg forgiveness before I begin. I must inform you that I am an accountant, not a Bible scholar. In what follows I am not attempting to interpret the Scriptures. I will leave that to much more qualified people. I am simply sharing some basic principles of church and pastoral financial accountability that came to mind as I read from God’s Word.
These thoughts were included in Practical Aspects of Pastoral Theology published by Tyndale Seminary Press. You can find the book at http://www.tyndale.edu/ or at http://www.amazon.com/Practical-Aspects-Pastoral-Theology-Christopher/dp/0981479154/ref=sr_1_10?ie=UTF8&qid=1286287914&sr=8-10
Verne Hargrave is the Church and Ministry partner at PSK LLP and author of the book, Weeds in the Garden.
