Bank Account Theft – Fraud in the Church – Survey Results part 10

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.

  1. During the check writing process, a list is compiled of bills to be paid.
  2. The list is sent to the bank.
  3. 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?

Security Blanket #5 – We Set Up Separate Bank Accounts for Special Funds

We set up a separate bank account for each special fund to make sure the money goes where it is supposed to go…”

Over the years, we have seen many churches take this approach.  Rather than using their church accounting software to take care of measuring and tracking the restricted funds, they either open separate bank accounts or worse, divide one bank account among several different general ledger accounts.  I have detected two main reasons some churches take this approach:

1 – They have been burned in the past by funds designated for a specific purpose being spent for something completely different.  When it came time to accomplish the designated purpose, funds were no longer available to accomplish the task. 

2 – They simply don’t trust themselves.  The temptation to redirect the funds is too great.  So, the thinking goes, “we will set up a separate account to keep these dollars safe”. 

Churches who choose this path seldom realize that by closing one door, they inadvertently open up a much more sinister portal:  they create an environment for a con artist to conduct a very expensive shell game.  With multiple bank accounts and limited controls, an embezzler can shuffle funds among the accounts to create a dense smokescreen, making detection extremely difficult. 

The best practice?  Have as few bank accounts as possible coupled with strong internal controls and recordkeeping.

Interested in finding out how your controls measure up?  Contact us today about our internal control assessment and other Best Practice Engagements at (817)664-3000 or email us using our contact form.

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