Credit Card / Debit Card Abuse Archives - PSK CPA

Simple Steps to Avoid Falling Victim to Fraud

In today’s world, fraud is a serious problem that almost everyone will have to deal with at some point. While there are many different variations of fraud, it all boils down to someone else trying to take advantage of you in some way. While there will always be bad people out there who want to take your money, that doesn’t mean that you have to allow it to happen. Here are a few simple steps that anyone can take to help with fraud prevention.

Cash Disbursements, part 5

Part 5 of our series on Cash Disbursements. In our recent Fraud Survey, we asked churches to respond to these statements:

“Our church issues credit cards (in the church’s name) to employees and/or volunteers.”

“Our church has implemented a written credit card policy to control credit card purchases.”

Survey Results – The first question had the largest variance between all respondents (58%) and respondents active in the NACBA (43%).  My assumption is that because NACBA members, through local chapter meetings, certification training, and the national conference, have heard plenty of the horror stories about credit cards “gone wild”.

It remains a mystery to me why churches handle credit cards in this manner (i.e. giving cards to ministers in the church’s name).  It is definitely not the practice in the business world.  Even if a corporation does issue corporate cards, the employee’s name is on the account too.  The employee pays the bill after being reimbursed under an accountable plan.  But if no backup is produced, or a personal expense is incurred, the employee pays the bill.

My worry that so many churches issue credit cards is somewhat alleviated by the results of the second question:  Of the churches that hand out credit cards, almost three fourths have a written credit card policy in place.

KEY: A word of warning.  The worst fraud investigation of my career was in the 7 figure range.  75% of the theft was accomplished with church issued credit cards. 

Credit Card Policy – Fraud in the Church – Survey Results part 12

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:

  1. Limit the dollar amounts of single purchases, and
  2. Restrict the use of the cards to certain businesses.

What would you add to these two requirements?

Credit Card Fraud – Fraud in the Church – Survey Results part 11

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…

Security Blanket #4 – Rotating Count Teams Are Not Enough!

We have rotating count teams with clear rules that account for every penny we collect in offerings…”

While this statement is not inaccurate, it is short-sighted.  When churches think of fraud, Sunday offering protection is usually the first thing that comes to mind.  And as a result, most churches do a very good job in protecting Sunday receipts.  In fact, Fort Knox may be an easier target than some churches I have visited who have ratcheted down tightly their Sunday collection procedures!

But, if this is all a church does in protecting itself from fraud, they are at risk.  There are at least two significant reasons:

First, Sunday offerings are not the only time cash comes into the church.  Many churches with air-tight security over Sunday collections completely ignore what happens from Monday through Saturday.  And in many churches, the amounts can be substantial, including day care fees, special event fees such as banquets and conferences, food sales, book sales, fund raising revenues, etc., etc., etc.  Also, tithes and offerings that are dropped off during the week often circumvent the entire teller process and instead land directly on the bookkeeper’s desk.

Second, cash inflow is not the only place where embezzlement takes place.  In fact, a case can be made that the larger cases do not involve the cash inflow processes, but the outflow.  The Association of Certified Fraud Examiners backs this assertion with statistics showing that while skimming (taking money before it is recorded) makes up 20% of reported fraud cases; check tampering is even more prevalent, making up 25% of the cases.  In addition, fraudulent expense reports and payroll scams chip in another 29% for good measure.

So, churches with tight controls over Sunday cash receipts should be commended for their efforts, but also reminded that effective fraud prevention includes extending this vigilance to the other means of inflow, and the outflow side as well.

If you’d like to hear more about our Best Practices Review or one of the many other services we provide, please contact us at (817)664-3000 or email us using our contact form.

Do you really need a debit card?

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.

Church Fraud Hitting Close To Home

Because of our involvement in fraud prevention we make it a point to keep up with the latest news by periodically searching the web for news stories.  It seems like the pace of fraud occurrence is quickening.

Here are two recent stories of church embezzlement:

  • Church employee charged with embezzlement
  • Firefighter and church deacon accused of embezzlement

PSK is not involved in any of these situations so I have no idea about anyone’s guilt, innocence or the ultimate outcome of the cases.  But, I am sure of one thing; no church or ministry wants to make these types of headlines.

To avoid this kind of publicity we have been urging, almost pleading with churches to take this situation seriously.  A “clear and present danger” exists and every church should immediately perform an analysis of their current management structures to determine their vulnerabilities to fraud.


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