Individual Payments: Contractors, Benevolence | Church Fraud Prevention | Weeds in the Garden

Preventing Church Fraud: Individual Payments

Our Fraud Awareness in the Church series continues as we look at Individual Payments: Contractors and BenevolenceWe asked churches to respond to these statements:

“Before paying an individual as an independent contractor, our church applies IRS compliant tests to determine if the payee qualifies as an independent contractor.”

“Our church has written a policy to direct benevolence payment activity.”

With two notable exceptions, tax-exempt organizations are not to transfer assets or make payments to individuals.  The two exceptions are Contractor payments — reasonable compensation for services provided the organization, and Benevolence payments — to individuals who are the target of the organization’s exempt purpose (rent assistance, etc.).  Outside of these two exceptions, all other payments are looked upon with a degree of skepticism by the IRS.

Survey Results: Surprisingly, 40% of the respondents do not go through a formal employee vs. contractor test.

Key: Embezzlers tend to shy away from reporting their theft to the Government. If ALL payments to contractors are screened and a 1099 prepared, a fraud loophole is closed.

Another area particularly vulnerable to fraud is benevolence.  Again, 40% of the churches do not operate under a written benevolence policy.

Key: Benevolence funds are one of the few accounts where payments to individuals are not suspicious.  (Fraudsters are very aware of this fact.)

Double Key: Part of the benevolence policy should be to NEVER give funds directly to the people being helped.  Make payments directly to 3rd parties. (Utility company, landlord ,etc.)

 

What Can We Do For You?

Get In Touch →