These two words should send shivers down the spine of every church leader: fraud and embezzlement. While both crimes steal money and trust from the church, they are different. Fraud is when a bad actor intentionally deceives someone for financial gain. For example, fraud happens when someone attempts to cash a fake check against the victim’s bank account or sends an invoice for a service they did not perform. On the other hand, embezzlement is more insidious; it comes from within the organization – from someone trusted. Embezzlement can range from simply pocketing unattended cash or transferring funds into a personal account.
The impact of these crimes goes beyond the financial loss; it destroys trust – a commodity a church cannot afford to lose. Churches that think it can’t happen to them may be alarmed to read that embezzlement happens in one in three churches, according to The Center for the Study of Global Christianity. That is unacceptable, and churches must create and follow much stronger policies and procedures to protect their finances and trust.
Collecting The Offering
Even though an increasing number of donations happen digitally or online, most churches still have an option allowing people to give cash or checks during the worship service. Ensure that two or more unrelated people collect the offering, secure it in a sealed and signed bag, and transfer the bag to a safe. A team of at least two unrelated people will cut open the secured bag containing the offering and then count and deposit the cash and checks. The key is having multiple people involved and always keeping each other accountable.
Making Payments
Churches, just like any other business, must pay their bills. Whether these bills come in the form of an invoice, credit card bill, or reimbursement request, having solid policies to limit fraud exposure protects the church.
- Review all credit and debit card purchases – every item on the statement must have an accompanying receipt showing where to expense the purchase (chart of accounts), a description of the purpose, and a signature.
- Process on reimbursement – The church’s policy should follow accountable plan rules defined by the IRS, and expenses must be related to church activities, accounted for within a reasonable timeframe, and approved by the appropriate designated signer.
- Multiple Signatures – Ensuring all payments have multiple signatures promotes transparency and accountability and greatly reduces attempts at embezzlement.
- Positive Pay – Churches enrolled in Positive Pay and ACH Positive Pay partner with their bank to reduce fraud by matching check numbers, amounts, check dates, and account numbers to the checks the bank is processing.
Financial Oversight
The operations side of a church needs to run like a business because it is a business. Creating and following strong financial oversight is essential when reducing the exposure to fraud and embezzlement. Here are a few best practices:
- The church must establish a team when it comes to financial oversight. Regardless of the church’s size, never allow only one person to have total control over the finances. A team approach prevents the burden from becoming too great for any one person and promotes accountability.
- The financial team must provide reporting to the appropriate teams regularly. For example, the team should provide donation data weekly to the congregation. The financial team needs to create a monthly financial summary report that includes a statement of activity, statement of financial position, cash flow, all bank account balances, and financial notes, giving insight into the reports.
- Every church should use a CPA to generate an annual financial review or audit. The CPA cannot be a friend or relative of anyone on the financial team. The further removed the CPA is from the church, the more likely it is to create accountability and transparency.
Now, more than ever, churches must implement more robust financial policies and procedures to keep bad actors from committing fraud and embezzling the church’s financial resources and eroding trust.
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