Affinity fraud is one of the fastest growing crimes in America. For many churches, fraud prevention and detection is a difficult task. Churches are prime targets for scam artists who use their social networks to gain the trust of hundreds of people very quickly. In their wake, churches often find that many of their members have lost thousands of dollars, and that the church community is irrevocably broken.
Fortunately, there are things that clergy and laity can do to protect a church. While fraud services are a good solution, a church can start some fraud prevention and detection on their own. In fact, some fraud prevention services can be as simple as being aware of any new members. Be on the lookout for people who ingratiate themselves very quickly. Good fraud prevention and detection will look closely at members who present themselves as very wealthy and who are making a lot of effort to become very involved with the church.
Church leaders and nonprofit board members need to know how to spot a con artist. Affinity fraud is incredibly damaging to ministries. Con artists are often well polished and smooth. Often, people are surprised after the fraud or con has been committed. Fraud prevention isn’t just for large multinational corporations. Churches and other nonprofit organizations are at an increased risk due to the donations and grants they receive. Listed below are six different warning signs that a person may be a con artist.
Affinity fraud is one of the fastest growing crimes in the United States, and unfortunately it can be one of the hardest to stop. Although it is often called church fraud, affinity fraud can occur within any group of closely related people. Most often, however, scam artists use the pre-built social networks of a church to lend themselves financial integrity and gain the trust of hundreds or thousands of people.
If your church or ministry is finding success and growing, the chances are they will be the target of those who wish to bring them down with fraudulent or deceptive means. Today’s world is seeing many churches, ministries, and non-profit organizations shutting down as a result of not being forewarned about the dangers of financial fraud in the church. Many church leaders and members have fallen prey to financial agreements and contracts that in the end turned out to be “too good to be true”. You may wonder if there are any programs that offer fraud protection to your church. The good news is there is, so let’s take a look at a few of the bestfraud prevention programs out there.
Part 5 of our ongoing Fraud Awareness in the Church series will address Policies and Procedures Manuals. PSK in cooperation with the National Association of Church Business Administration (NACBA) conducted a survey to determine the extent of fraud awareness in the church environment. We asked churches to respond to this statement:
Our church has compiled written financial, accounting, management and personnel policies in a central document such as an accounting and management policy manual.
Given the multitude of church management resources available and the myriad of church conferences that church managers can attend, it surprised me that only 50% of the respondents answered “yes” to this question. The reasons for this low compliance rate puzzles me, but if I had to make a guess as to the culprit, I would say that it is because of the “tyranny of the urgent” environment that many church managers live in. Because of their overloaded schedules many simply adopt the “Wac-a-Mole” management theory in which the administrators simply handle what pops up next. As long as they are getting the job done, they see no need to document procedures.
Unfortunately, by doing this, they are ignoring the fact that not having written policies and procedures is not only a bad way to do business, it also exposes the church to fraud. The reason? Fraudsters HATE BASELINES!
Baselines help the church define “normal”. Without normal or standard operating metrics it is difficult to determine if this year’s numbers are consistent with last year’s. These blurred lines are a happy hunting ground for crooks.
KEY: Implementing a Policies and Procedures Manual will establish baselines and definitely help prevent fraud in your church!
Part 12 of our ongoing Fraud in the Church series. PSK in cooperation with the National Association of Church Business Administration (NACBA) conducted a survey to determine the extent to which churches are attempting to address the problem of church fraud. We asked them to respond to this statement:
Our church has implemented a written credit card policy to control credit card purchases.
Ok, I know I was a little harsh in the last post… I guess it’s because I have seen too many credit card train wrecks! The million dollar event I discussed in the last post was definitely the largest, but I have seen many of its smaller brothers and sisters.
Although over 80% of the surveyed churches issue church-named credit cards, the results of the next query gives me some comfort. 70% of these churches have implemented a church credit card policy to monitor credit purchases. Unfortunately, that leaves nearly a third with no documented policies to give oversight over credit card purchases. Based on the things I have seen, these 30 percenters are living on the edge.
It is imperative that any church issuing credit cards to employees and volunteers has a credit card policy to lay down usage guidelines.
At a bare minimum a church credit card policy should:
- Limit the dollar amounts of single purchases, and
- Restrict the use of the cards to certain businesses.
What would you add to these two requirements?
Part 11 of our ongoing Fraud in the Church series. PSK in cooperation with the National Association of Church Business Administration (NACBA) conducted a survey to determine the extent to which churches are attempting to address the problem of church fraud. We asked them to respond to this statement:
Our church issues credit cards (in the church’s name) to employees and/or volunteers.
At a response rate that came as no surprise to me, 86% of the churches who took part in our survey issue credit cards to employees. It continues to amaze me how many churches follow this practice. Seldom do we see this in our work with commercial clients. Most businesses with accountable business expense reimbursement plans require employees to use their own cards. This is particularly true with smaller organizations. Some larger companies do issue corporate cards, but all of them I have seen keep the employee on the hook by including the employee on the account: The employee pays the bill AFTER being reimbursed by the company. Employees of businesses that follow this procedure tend to be more responsible credit card users because there is always the possibility that their employer may say, “NO!”
Why do we consider the issuance of credit cards (in the church’s name) a fraud risk? I have a simple answer:
The largest church credit card fraud investigation I have conducted resulted in more than one million dollars in losses.
Illicit use of just two credit cards was responsible for 75% of the theft!
Without sufficient oversight, credit cards can turn the entire purchase approval system on its head. I have seen it happen…
Part 10 of our ongoing Fraud in the Church series. PSK in cooperation with the National Association of Church Business Administration (NACBA) conducted a survey to determine the extent to which churches are attempting to address the problem of church fraud. We asked them to respond to this statement:
Our church has established a “Positive Pay” arrangement with our bank.
Increasingly, due to technological change and advancement, the threat of fraud is no longer limited to dishonest employees. Hackers and other “online bandits” have become quite proficient in draining the bank accounts of the unsuspecting. One defense against this is to establish a Positive Pay arrangement with your bank.
Only 5% of our respondents have this type of bank account protection in place, which is surprising because Positive Pay is a simple three-step process.
- During the check writing process, a list is compiled of bills to be paid.
- The list is sent to the bank.
- The only checks or drafts to be cleared by the bank are those on the list.
I am very curious why so few take advantage of this. Any ideas?
What went wrong at this Church? How could this one employee make off with $200k of funds raised for her congregation and parochial school? Read the full article here. Simple financial controls may have prevented this! Does your Church have adequate internal controls? We can help!
Source: Journal Sentinel Online – Milwaukee
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.