On September 9, 2010, St. Petersburg Times reported the following story:
Pastor Pleads Guilty in Embezzlement Case
Gregory S, 38, was an accountant for a staffing company when he was not busy preaching from the pulpit. During his employment with the staffing agency, he was able to write checks totaling $813,142 to his church without the staffing company’s or the church’s knowledge. Earlier this month, he pleaded guilty to theft from an employee benefit plan, he managed. The stolen funds received by his church were then used for personal and other expenses.
All churches are protective of the outflow of funds as most frauds occur during this process. However; the same level of attention, if not more, should be paid to the inflow of funds as well.
It appears that his church did not have a formal gift acceptance policy or if it did, the policy was not being followed. A proper gift acceptance policy and adequate contributions procedures, if followed, would have acted as a safety net and would have caught the fraudulent remittances by the retirement plan from being deposited in the church’s bank accounts.
Every ministry should adopt a policy regarding accepting gifts and contributions as not all gifts and contributions are necessarily beneficial to the organization. An effective gift-acceptance policy should be formalized, in writing, and must achieve the following primary objectives:
First, it should identify the types of assets your ministry will accept (e.g., cash, real estate). Next, it should provide guidelines as to the forms of gifts that are acceptable. Finally, it should define your ministry’s role in administering the gifts.
But that’s not enough. To meet the needs of your ministry and to help protect your resources and reputation, your gift acceptance policy should also:
I. State that your ministry will obtain legal input and advice when appropriate.
II. Specify limits your ministry may want to impose, such as maximums or minimums in regards to charitable gift annuities.
III. Detail any restrictions that donors will be permitted to place on gifts.
IV. Outline the responsibilities that donors have with respect to obtaining appraisals for their own tax purposes.
V. Identify the specific circumstances under which your ministry will obtain an independent appraisal.
VI. Outline how your ministry plans to acknowledge gifts.
VII. Note the time frame for communicating with donors.
VIII. Specify the procedures for amending the gift acceptance policy.
The pastor’s scheme would have been caught instantly, had the church communicated with the donor upon receipt of the first check.
To avoid this from happening at your church we have created FACT, a web based test which will identify the cracks in your current system and help you prevent fraud in the future.
Give us a call at (817) 664-3000.
News stories about church funds being embezzled by an employee or clergy are common, but embezzlement by someone charged with oversight is rarely reported in the media. A Michigan based news site, www.mlive.com reported the following story on September 16, 2010:
Former Birch Run church leader charged with embezzling more than $100k from congregation
The former church president in Birch Run, Michigan, remains in jail on a $250,000 cash-only bond for allegedly embezzling over one hundred thousand from the ministry.
According to the perpetrator, he “got in deep” and “was trying to get his son out of trouble.” The former church president was able to withdraw funds from the various church bank accounts by writing checks and affidavits of loss and cashing them using his and the signature of the congregation treasurer, without her knowledge.
The church could have easily prevented this from happening.
First, the church president remained in that position for 12 years, allowing him to commit and conceal the fraud for an extended period of time. Positions of oversight i.e. president, treasurer, finance committee membership etc. should be rotated periodically. The term and rotation of the officers should also be documented within the church’s bylaws and constitution.
Second, it appears that the perpetrator had joint custody of the bank account along with the church treasurer but was also responsible for paying bills. Just because an individual serves as the president does not mean that his duties are exempt from oversight and the principle of segregation of duties. He was assigned to approve and sign checks, so the actual function of writing checks, recording disbursements in the general ledger and reconciling bank accounts should have been assigned to someone else. Every organization should put faith in a system, not a person.
And lastly, he had pressure to commit the fraud. In his own words, he was trying to get his son out of trouble. Given the circumstances, anyone in his position would have been tempted to commit the crime.
Obviously, he alone is responsible for the act; however, it was the responsibility of the church’s leaders to implement a system of checks and balances and ensure that authority is not concentrated in one individual’s hands, regardless of his status and reputation within the church and the local community.
To avoid this from happening at your church we have created FACT, a web-based test which will identify the cracks in your current system and help you prevent fraud in the future.
Give us a call at (817) 664-3000.
“Our bookkeeper has been a member and served our church for many years. We trust him/her completely…”
Church’s Secretary accused of embezzling $1.5 million
Former pastor guilty of stealing from church
Church’s former secretary jailed on fraud charges
Priests get jail for stealing from church
Church secretary accused of stealing thousands
Woman accused of stealing from church
Baptist church secretary was arrested and charged with 17 counts of credit-card fraud…
Church financial secretary steals $216,000—asks for forgiveness
Church secretary admits to stealing $274,000 from congregation
These are all actual headlines from articles about church theft. I think we’d all agree…this is NOT the publicity that anyone wants, particularly a church. In most of the church embezzlement cases I have read about, the crime is not perpetrated by a thief who has sought out a soft target. More often churches are embezzled from by a long-time, dedicated and trusted employee who has been given total access to the church’s financial operations. In short, it is usually not bad people who steal from churches. Rather, church embezzlement is committed by good people who find themselves (or their close relatives) in bad situations.
Churches victimized in this way have often not taken into account the first leg of the “fraud triangle” – Pressure. (Rationalization and opportunity are the other two.) Pressure can be defined as any outside force or set of circumstances that creates a need for cash. Pressure comes in many forms, including large unexpected medical costs, business reversals, and in far too many cases, addictions. When faced with these issues, many people of otherwise unquestioned integrity are tempted to “borrow” from their employer to alleviate the pressure.
Churches have limited control over the pressures their employees and volunteers face. However, they have almost total control over one leg of the triangle – OPPORTUNITY. By establishing strong financial controls and processes churches can go a long way in removing temptation from its employees.
If you’d like to hear more about our Internal Control Assessments or one of the many other services we provide, please contact us at (817)664-3000 or email us using our contact form.
Tax exempt organizations are required to file an annual return with the IRS. If the organization fails to do so for three consecutive years, the exempt organization automatically loses its exempt status. The IRS announced today one-time relief benefits for Form 990-N and Form 990-EZ filers that have failed to file for the previous three years.
Please note that the relief does not include organizations that are required to file a Form 990. To read more about this one time exemption, click here. The IRS provided a list of organizations that are at risk of automatic revocation. You can view the list here.
If you need help with your annual filing requirements, please contact us. We will walk you through the process and help you stay in compliance.
The National Association of Church Business Administration hosts its annual conference next week in Orlando (July 19-23). Always lots interesting conversation and insightful presentations at these annual gatherings! I encourage you to attend Verne Hargrave's presentation on Church Fraud. What he has to say will scare you to death, but also give you the tools to greatly reduce fruad risk.
NACBA website www.nacba.net
Verne's website www.pskcpa.com
I was looking at The Church Law Group's website, and once again I'm impressed by the depth of service they offer. In particular, I like the benefits their member churches receive.
Here at PSK, we have have come up with a similar service. Churches and ministries can have ready access to our expertise on an ongoing basis: PSK's Optimize Program – POP. POP membership brings you and your church the assurance that you have our expertise available whenever you need it - at a moment's notice! Just go to our website and click on the large POP icon. I think you'll be glad you did!
To accomplish your church’s mission and vision for ministry you need to effectively manage your church’s finances. As we all know, the management of church money is a complex task for any church finance manager, treasurer, business administrator, bookkeeper or pastor. This book will help you strategize, organize, measure, communicate, protect and audit the financials of your ministry.
This guide focuses on five key issues:
- Planning and Budgeting – How to use strategic planning and an operating budget to reach ministry goals.
- Minimizing the Risk of Embezzlement – 50 internal control practices for every church and how to implement them to protect valuable ministry resources.
- Church Financial Reports – How to effectively communicate mission-critical financial information to church leaders.
- Performance Measurements – How good are you at what you do? Explore various measurements and ratios to help you assess the health of your church and identify the areas that need strengthening.
- Church Audits – How to avoid, as well as prepare for, external audits conducted by agencies, such as the Internal Revenue Service (IRS) or the Department of Labor, and ways to get the most out of internal church audits.
Each section is supplemented with additional material to help expand your understanding of each topic and provide practical application to the principles that are presented. Whether or not you have professional training in finances, The Essential Guide to Church Finances is the resource you need to help accomplish your church’s mission and vision.
Every church needs a strong foundation of current and accurate information for financial planning, tax compliance, and risk management. Failure to stay fully informed in today’s environment can lead to serious problems for both the church and its leaders. No resource responds better to this need than Church Finance Today.
Few attorneys, CPAs, or business administrators specialize in the needs of the church. As a result, it’s hard for church leaders to get authoritative and accurate information. That’s what sets Church Finance Today apart. Church Finance Today focuses exclusively on the needs of the church. Its team of editors include attorneys, CPAs, certified financial planners, risk managers, former IRS officials, administrators, and professors who are leading experts, professionally trained, and fully dedicated to serving the needs of the church.
Richard Hammar, the senior editor of Church Finance Today, is widely considered the leading authority in the United States today regarding church law and tax issues. A graduate of Harvard Law School, he is both an attorney and CPA, and is the author of more than 25 books on legal and tax issues for churches and clergy.
Church Finance Today keeps you informed like never before with timely and practical information . . . written in plain English! You’ll get simple and concise explanations to help you understand and comply with tax reporting obligations. You’ll stay up-to-date on relevant IRS developments, court rulings, and legislation with examples and implications for your church. You’ll find practical assistance in responding to problem areas that often catch church leaders by surprise.
Important reasons why your church should receive Church Finance Today:
- Risk Management. Staying informed is your best risk management strategy. In today’s legal environment, ignorance can be costly.
- Cost and Satisfaction. You get an entire year for the same price as about 10 minutes with an attorney. Plus your satisfaction is fully guaranteed.
- Current. You’ll stay on the cutting edge of new legislation and important tax developments.
- Comprehensive. Church Finance Today covers a broad range of topics and issues.
- Authoritative. You’ll receive information you can rely on.
- Straightforward. You’ll get information that is written in plain English.
- Practical. You’ll find practical information that can be applied to your church.
- Compliance. You’ll receive information that will enable you to comply with federal requirements.
- Ongoing Support. You can ask questions online and interact with other subscribers from across the country.
Gary Steele, with our affiliated company Payroll Partners, has alerted us to an interesting opportunity. If your church or organization has hired new employees recently, you may be eligible for a tax refund! At our church breakfast last Thursday Gary told us the following:
“If you aren’t aware the HIRE Act was signed into law by President Obama March 18, 2010. Most tax reductions laws are a credit to Income Tax and therefore do not apply to churches. This one, however, does apply to churches because it is actually a reduction in the 6.2% Employer matching OASDI payroll tax (commonly referred to as FICA).
To qualify, an employer only has to have any employee hired after 2/3/2010 who did not work more than 40 hours in the 60 days immediately prior to his or her hire date to sign a W-11 IRS form to certify that fact. If this is done, then the Employer 6.2% matching QASDI tax is not paid on that individual for the remainder of 2010.”
For more information you can access a PDF at http://www.payrollpartners.com/Portals/0/HIRE%20Act%20Information%20file.pdf that details the new law.
If you think this might apply to you I would recommend you contact Gary at:
3001 Medlin Dr Suite 125
Arlington TX 76015-2370
817 467-9994 fax
Every week ministries across the country get several hundred thousand requests for assistance. Some are valid, while others are not. Here are some real life examples of benevolence requests that I have encountered recently in my experience with ministries:
- A church member requests the business office to help with the monthly payments on his vacation home in Colorado
- An employee had a major surgery and the ministry decides to assist with overwhelming medical bills
- A local resident calls the business office and requests helps with the utility payments
- A stranger walks in the door and asks for help because her car ran out of gas
- A local resident requests the ministry to buy him a $2000 suit for an interview so he can land his dream job
- A church member requests assistance with expenses for her daughter’s semester in Spain
Most churches and ministries are sympathetic and want to help and most requests are compelling, especially in this economy. But unfortunately, there are scammers out there that prey upon ministries’ willingness to help and are not afraid to take advantage. For instance, on May 18, 2010, the Columbia Missourian reported the following story:
Columbia Church Reports Possible Money-Wiring Scam
It is relatively easier to tell the difference between a need and want, but not always easy to discern between legitimate and fraudulent requests. So how can a ministry respond to all requests in a compassionate yet tactful manner?
Adopt a written benevolence policy. A well written policy will lay out the foundation for ministry’s benevolence activities and should:
- Specify who is to receive and approve the requests for assistance
- Specify the situations in which assistance may be provided, the type of assistance that will be provided and how it is to be provided
- Eliminate any inappropriate requests for assistance
- Keep the ministry within guidelines set forth in the Internal Revenue Code
- Establish confidence within the ministry and amongst its benefactors that benevolence funds are being administered properly
- Enable the ministry from developing a reputation of an easy target amongst scammers