Ten Ingredients of Effective Fraud Prevention

Nov 22, 10 • Blog, Fraud PreventionNo Comments

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:

  • Strong organizational structure
  • The essential nature of a written organization plan
  • Keeping up with the times
  • Full disclosure financial statements
  • Compliance with the tax laws
  • Awareness of ALL sources of revenue
  • A well defined purchase approval and payment system
  • Comprehensive human resources planning
  • Posting a guard over fixed assets
  • A commitment to the future

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.

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