Over the last two decades churches have responded to the threat of child abuse. One of the key elements of protection has been performing background checks on anyone even remotely involved with child care. Today, it is rare to find a church that does not conduct regular background reviews of potential child care providers.
This article, is a good illustration that background checks should be conducted in other areas of church administration as well. The first few words of the article tell it all; “An Olgeton woman convicted of embezzling from a bank three years ago… This is proof positive that background checks should be performed, not only on child care workers, but also on employees and volunteers given financial responsibility in a church. Perhaps, if this church had only done a little research, much trouble could have been avoided.
To protect themselves against potential fraud, churches should consider conducting two types of background checks:
- A criminal background check can reduce the possibility of hiring a criminal. I have no statistics at hand, but I am fairly certain that a large percentage of church embezzlements are the result of persons with previous experience.
- Churches might also consider obtaining a credit report on potential new hires. Not only might this step uncover individuals with prior arrests, it also makes it more difficult to hire first-time embezzlers. One of the elements of the fraud triangle is PRESSURE. In the context of fraud, pressure involves events in an individual’s life that might compel him or her to take what is not theirs. Common pressures are medical bills, business reversals, addictions such as gambling or substance abuse, and financial difficulties. Being aware of the existence of this type of pressure before hiring can eliminate a great deal of suffering.
Because this is a very sensitive area the best practice is to consult competent legal and risk management assistance prior to implementing a background review plan. Two names I can share are The Church Law Group ( www.churchlawgroup.com ) and MHBT Insurance ( www.mhbt.com ).
“We require all checks to be signed by two officers of the church”.
Dual controls, or separation of the accounting duties, are an important brick in the wall of fraud protection. Requiring dual signatures is often one of the ingredients in providing proper segregation of duties. But, if this practice is not combined with a few other protective measures it will be no more effective as a lion with no fangs or claws.
True, the knowledge that all checks must be signed by two people will deter most people from taking a chance. But, if this is the only control in place, it will not be enough to scare off a bold predator.
Let me set a scenario. Imagine a bookkeeper who has been given the responsibilities to write checks, prepare the general ledger and reconcile the bank account. If this individual has courage, handwriting skills, and lack of integrity the protection provided by dual signatures will be paper thin. Ask yourself, how much more difficult would it be to forge two signatures than one?
My point? Do not rely on dual signatures as your only wall of defense. Dual signature requirements, standing alone, are no match for a check forger.
The University of Dallas just announced a new concentration in its Masters in Pastoral Ministry program – in Church Management! Now, this isn't a Masters degree in Church Management itself, but a concentration in Church Management in the context of a Masters degree in religion/theology.
Another indication that church denominations are recognizing the need for quality training that combines business expertise with a passion for ministry. And I think that's great!!
http://www.udallas.edu/. Just click on the following tabs – Academics; School of Ministry; and Our Graduate Programs
As you may know, the IRS revamped the Form 990 a few years ago. During this process a law was passed that requires an automatic revocation of tax exempt status for failure to file form 990, 990-EZ, 990-N or 990-PF for three consecutive years. Did you get that? You will lose your tax exempt status if you do not file your annual return three years in a row? If you do lose your status, you have to start the application process again. The IRS cannot reverse the revocation.
So let's review the rules on who must file. Most tax exempt organizations must file an annual return (except for these organizations). Here are four types of returns – 990, 990-EZ, 990-N, and 990-PF. The following thresholds are for the tax year 2009. The 990 must be filed if the tax exempt organization has gross receipts equal to or greater than $500,000 OR total assets equal to or greater than $1.25 million. The 990-EZ can be filed if the tax exempt organization has gross receipts equal to or less than $500,000 OR total assets equal to or less than $1.25 million. The 990-N must be filed if the tax exempt organization has gross receipts equal to or less than $25,000. Private foundations must file a 990-PF regardless of financial activity.
The 2010 tax year thresholds drop to $200,000 for gross receipts and $500,000 for total assets. The 990-N threshold increases to gross receipts equal to or less than $50,000. This can be confusing so I recommend you use the IRS charts.
Here is where this might affect you or someone you know. The 990-N is a relatively new form and small organizations simply may not be aware of the new filing requirements. Another example includes organizations with volunteer officers that rotate frequently. It is important that all tax exempt organizations, regardless of size have a process in place to ensure annual compliance. As you can see, annual compliance has become critical.
You can find more information on the annual filing requirements here. PSK is here to help. Please call to schedule an appointment if you need help with your organization’s annual filings.
Churches continue to play a dangerous game. While the number and magnitude of fraud incidents rapidly accelerate, few churches are taking the time or spending the money to develop a wall of fraud protection. Many different reasons are offered in defense of this inactivity. But, this one leads the parade: “It could never happen here.” Nothing could be further from the truth and proof of this contention is easy to find. I offer two.
First, current events scream that something is wrong. All that is necessary to make this point is to perform a Google © search for “church embezzlement” or “church fraud”. I do this weekly and each and every week I am provided a fresh batch of news stories where yes indeed, “It did happen here”. These headlines clearly communicate that fraud in the church house is prevalent. In fact, the case can be made that it is epidemic.
Another proof not only teaches that it can happen in any church, but that church embezzlement is not a new phenomenon. The fact is, fraud in the congregation has been taking place since the very beginning. Take a look at the Gospel of John, Chapter 12, Verse 6. The apostle makes it crystal clear that Judas Iscariot was an embezzler before he became a betrayer. Jesus had an embezzler within His inner circle who stole from the first congregation.
My conclusion? If it can happen there, it can happen anywhere.
Flipping through a magazine, I came across this picture.
The intent was very clear except, the fence was no protection from a chainsaw.
Looking beyond the appearance of protection, one could see these once beautiful trees had been stripped of their branches and cut into two to three foot chunks, strewn in every direction, nothing pretty about it; once a picturesque display of natural beauty was now only a heap of kindling ready for the fireplace.
I was left wondering, “Is this what you call protection?” A fence and a sign were not enough to protect this forest area – they only offered the appearance of security. The intention to protect was meaningless when there was no action taken to follow through with security processes.
Too many churches invest valuable time and financial resources to develop sound policy and control manuals, only to render them worthless when they place them on the shelf and never use them.
Adequate protection does begin with evaluating the church as a whole and developing procedures and policies that are in alignment with the purpose and goals of the church. It is also necessary to evaluate and revise policies periodically and communicate to the church staff the importance of implementing any new revisions. This will offer security to the church and protection for its staff.
Any church can put well meaning policies and procedures in place, but just like the fence and the sign, policies and procedures left unused or not updated, are nothing more than a security blanket.
In recent years there has been an alarming upward spike in the number of church fraud and embezzlement incidents. But surprisingly, given this epidemic, few churches are taking proactive steps to ward off predators. The reasons given are many and varied but most offer no more protection than the Peanuts character Linus’ security blanket.
Each week, this blog will be updated with a description of another “security blanket” churches wrap themselves in thinking they are protected from fraud. Be looking for Security Blanket #1 – “It could never happen here…”
In another post (See Lame Excuse #1), I use the story of Judas stealing from the disciples’ money bag to illustrate that fraud can take place in any church. This week I found another Biblical example of this truth. Luke, in Acts Chapter 5, recounts the sad story of Ananias and Sapphira.
In the story, this couple sells a piece of property and promises the church (and the Holy Spirit!) that the proceeds would be given to the congregation. As it turns out, the couple comes up with a scheme to withhold some of the funds while making it appear they had given the whole amount to the church. When confronted, both Ananias and Sapphira cover themselves by lying.
This week, in my routine “fraud news search”, I found a story with some similar characteristics.
Former Church Treasurer Charged…
Did you notice that this treasurer essentially did the same two things Ananias and Sapphira did. She stole money from the church and then lied about it by “doctoring” the books.
What can a church do to avoid such a fate? Here are two observations:
The fact that the fraud was not discovered until a new treasurer took over implies that no one, other than the treasurer, ever looked at the accounting records. The church was violating the basic accounting philosophy of adequate segregation of duties. Lack of involvement by others made it easy for the treasurer to steal, and then doctor the records to cover her tracks. Something as simple as having someone other than the treasurer reconcile the bank account monthly might have been enough to prevent the thefts.
Second, I have never been convinced that debit cards are all that useful in the church world. Sure they are efficient, but a debit card (and his close relative, the credit card) can completely circumvent the best bill approval and payment systems. If a church insists that it must have cards, by all means adopt a credit card use policy to govern their use.
This past week I received an interesting email. A Christian bookseller was offering The Left Behind series; Collector’s Edition. That got me to thinking. (Which at times can be a very dangerous concept!) As a young boy I was thrown out of many Sunday School classes for asking questions like this:
Isn’t this an oxymoron? I mean, if it is true (as the Left Behind Series teaches) that soon we will all be “raptured” out of this present world, why would we want to be collecting much of anything? Oh well, just wondering…
Speaking of collecting, one thing I have noticed is that most churches are habitual collectors. At least when it comes to documents. Often we are asked by our church clients how long they should keep documents. When we press the question, we often learn that the church keeps virtually everything. In fact, it is not uncommon to find a church with offering envelopes dating back more than ten years! On the other hand, we often discover that the corporate minute books of the same church cannot be located or have not been updated in years! What this tells us is that many churches are confused about what documents are important and what are not.
Document management is crucial. Keeping items too long can provide information that can only do one thing; hurt the church. Conversely, not keeping or failing to update permanent records can have the same effect.
Every church must make document retention a priority. A starting point is the development of a comprehensive document retention and destruction policy. If your church does not have one, may I recommend you start the process soon?
If you have any questions, please do not hesitate to contact me at firstname.lastname@example.org. Also, if your questions concern corporate documents (minutes, by-laws, etc.) you might want to contact our friends at the Church Law Group (www.churchlawgroup.com)