Cash Disbursements, part 4

Part 4 of our series on Cash Disbursements. In our recent Fraud Survey, we asked churches to respond to this statement:

“Our church has established a “Positive Pay” program with our bank.”

Survey Results – Less than 5% of the respondents use such a program.

While the phrase “Positive Pay” is the trade name of one commercial bank, it has become a generic term for an agreement between a bank and its customer that works like this:

  1. The church establishes a standard routine for paying bills, for most churches once each week.
  2. A list of approved bills is compiled and transmitted to the bank.
  3. The bank only clears checks or other charges presented for payment that are on the church’s list.
  4. The church is also informed of any checks or charges presented for payment that were not included on the list.

Increasingly, businesses are using arrangements like this to address a newer face of economic fraud.  Fraud experts have historically used the “fraud triangle” of pressure, rationalization, and opportunity to describe the key ingredients of a fraudulent act.  Generally, this discussion has focused on “inside jobs”.

However, with the advance of technology, a new face has arrived on the scene – the “hacker” completely outside the organization (in many cases completely outside the country!).  Using Positive Pay is one protection against this type of fraud activity.

Perhaps a new leg needs to be added to the fraud triangle.  (I guess that would make it a square…)

Cash Disbursements, part 3

Part 3 of our series on Cash Disbursements. In our recent Fraud Survey, we asked churches to respond to this statement:

“Our church has established an “approved vendor” list.  All payments for goods or services are made only to vendors on the list.”

Survey Results – Only 20% of the churches surveyed reported using an approved vendor list.

The low compliance rate of this question was a big surprise to me.  The surprise was that so few churches have a formal process for determining who they choose to do business with.

In a previous post we discussed collusion. One of the methods of theft, resulting in some of the largest dollar losses, is vendor fraud. Vendor fraud often occurs when a purchasing agent within an organization COLLUDES with a corrupt vendor outside of the organization.

What makes this type of fraud especially effective (from the fraudster’s point of view) is that it is extremely difficult to detect, by both the church and its auditors.

KEY: Fraud prevention includes KNOWING who you are doing business with.

Having a vendor application, approval and acceptance process helps the church apply this key.

Cash Disbursements, part 2

Part 2 of our series on Cash Disbursements. In our recent Fraud Survey, we asked churches to respond to this statement:

“Our church uses pre-printed, pre-numbered purchase orders or check request forms to initiate purchases.”

Survey results – The positive response to this question was extremely low, causing me to believe that the question was poorly worded.  It should have included the use of electronic purchase orders generated by most church management software.

Not being able to rely on the survey results, however, does not keep me from sharing the main point.

KEY: A documented approval and bill payment process is a must!

Keep in mind one of our previous posts: Fraudsters Hate Baselines. A well documented bill paying system forms a part of the baseline.

Cash Disbursements

Our Fraud Awareness in the Church series continues with a 5-part series on Cash Disbursements.

When churches finally get around to considering their exposure to fraud, they almost universally focus on the cash receipts or the inflow part of their cash processes.  Without doubt, many churches have been hit by fraudsters skimming from the offering plates.  But in most cases, the losses are relatively small for two reasons:

  • Most churches have strong count team processes, although more of them should add some rotation to their teller mix.
  • The vast majority of offerings come in the form of checks or credit cards. Very little is cash.

KEY: The fact is, the biggest scams usually occur on the “outflow stream” not the inflow…

In the next series of posts we will see how well protected our church survey participants are on this side of the ledger.

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