Strong Organizational Structure

Let me be blunt.  The fact that a church has never had an incident of fraud is due to one of two things: luck or planning. Needless to say, the odds of successfully avoiding fraud are much higher with the latter approach.  If a church has been relying on the first approach and has never had an incident, it should be congratulated for its good fortune.  But, the church should also be reminded that its good fortune rests on the fact that either the crooks have not made it to their church yet, or they just haven’t been caught.  In time, one or both of these things will probably occur.   

To increase the chances of avoiding fraud, the best practice is to plan and organize.  This is accomplished by implementing a strong organizational structure within the church. 

Key: Evidence points to the fact that churches with little or no organizational structure are frequent targets of fraud.  The reason is rather obvious; many fraudsters are much better students of management theory than the average church.  They can spot an “easy mark” a mile away.  Crooks can also spot a well-defended church and will avoid it.  Greener pastures are very easy to find because well protected churches are significantly outnumbered by poorly managed congregations. A crook-resistant church usually develops a strong organization in three areas.   

  • Tone at the top is the key to a church’s entire fraud prevention structure.  If integrity is missing at the top levels of management, all other controls will prove to be pointless.  Every church needs to have senior level staff that respects and understands the need for accountability. Good leaders may not care much for expense reports and purchase orders, like most of us, but they do understand their necessity.  It is crucial that leaders comply without visible complaint to those around them.  Junior staff will follow their leaders and the direction they are led is of extreme importance.
  • An empowered leadership team is another essential ingredient, without which transparency is not possible. When making a point about the need for openness and transparency, Supreme Court Justice William Brandeis is credited with saying “Sunlight is the greatest disinfectant”.  One of the ways churches operate in the sunlight is by appointing a formally designated leadership team to guide it. (Titles vary from church to church: deacons, elders, directors, leadership team, etc.)  Members of the team must be adequately trained to understand the requirements and responsibilities of their jobs and allowed to ask difficult and uncomfortable questions.
  • Competent volunteers are essential to the church, the greatest volunteer organization in the history of the world.  But, volunteers should be given sufficient orientation and training in order to understand their roles.  Also, a church should not just let anyone be a volunteer.  Volunteers need to be checked out.  Unfortunately, many volunteers have ulterior motives behind their willingness to help out.

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.

Security Blanket #1- It Could Never Happen Here

Churches continue to play a dangerous game.  While the number and magnitude of fraud incidents rapidly accelerate, few churches are taking the time or spending the money to develop a wall of fraud protection.  Many different reasons are offered in defense of this inactivity.  But, this one leads the parade: “It could never happen here.”  Nothing could be further from the truth and proof of this contention is easy to find.  I offer two.

First, current events scream that something is wrong.  All that is necessary to make this point is to perform a Google © search for “church embezzlement” or “church fraud”.  I do this weekly and each and every week I am provided a fresh batch of news stories where yes indeed, “It did happen here”.  These headlines clearly communicate that fraud in the church house is prevalent.  In fact, the case can be made that it is epidemic.

Another proof not only teaches that it can happen in any church, but that church embezzlement is not a new phenomenon. The fact is, fraud in the congregation has been taking place since the very beginning.  Take a look at the Gospel of John, Chapter 12, Verse 6.  The apostle makes it crystal clear that Judas Iscariot was an embezzler before he became a betrayer.  Jesus had an embezzler within His inner circle who stole from the first congregation. 

My conclusion?  If it can happen there, it can happen anywhere.

The Real Cost Of Church Embezzlement

The severity of a fraud incident is usually measured in one way – How much money was lost?  When presenting fraud case studies to church groups I have noticed a common reaction: the larger the dollar loss, the louder the gasps from the audience.  While it cannot be denied that in some cases the economic impact of embezzlement can cripple, or in some cases, result in the death of a congregation, the dollar loss is often the least of the church’s problems.

In the church environment, the real cost of economic fraud has little to do with lost funds.  In fact, most churches can replace stolen money with insurance claims. (Or perhaps a great sermon series!)  The real cost of an incident comes in the aftermath, when the church body learns they have been betrayed.  Loss of trust can, and often does, outweigh the dollars lost to an embezzler.

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