Is Your Church an Embezzler’s Dream?

Normally this blog site deals with technology issues and trends  that I think are worthwhile pieces of information for people doing digital technology for their faith communities.  However, our Canon for Finance, Chris Smith-Clark has brought to my attention some good tips on protecting your organization from “financial chicanery”.  I am posting her article here and hope you will take it to heart.

While it is common in many churches to think “it cannot happen here”, let me give you the “Cliff Notes” of a Villanova University study conducted in 2007. Between 2001 and 2006, 85% of Roman Catholic dioceses discovered at least one incident of embezzlement (78% of the dioceses responded) and 11% lost at least $500,000. The Episcopal Church has had a spot in the national limelight when the national treasurer, Ellen Cooke, was found guilty of embezzlement. Having just read an article about a church CFO who embezzled $850,000 in a period of 5 years, I thought this a good time to bring up the topic. I doubt donors intended their gifts be used to pay his personal mortgage and credit cards as well as buy a Lexus, Range Rover and Maxima, a diamond ring and… you get the picture.

While any number of examples can be found that describes how embezzlement can occur with a specific control weakness, I am not going to lay out a blue print, rather below are controls that each church should implement to safeguard their finances.

1- One or more unrelated persons count the offering- the more people involved, the better and the teams and partners should periodically be changed. Optimally, a pool of people would be available and each month or quarter people would be randomly selected for that period. No one person should ever be alone with the offering. The offering should be deposited promptly (ideally the same day) at the bank. Many churches have implemented online giving opportunities. Not only is this a convenience for many members (especially when there is a special offering for natural disasters etc.) but this is less susceptible to embezzlement.

2- Offering counts should be reconciled with each bank deposit slip. At the least the offering slips should be reconciled monthly with the bank statement.

3- The vestry/Bishop’s Committee should decide a dollar amount above which all checks will require two signatures. The dollar amount will vary in relation to the congregation’s budget. The clergy person should not be a signer if for no other reason to be above any innuendo and the reality is clergy have greater access to church offices than any other person. Never should a blank check be signed in advance. It is important to have enough signers available to avoid this temptation during the months members frequently vacation.

4-Timely reconciliation of all bank accounts is essential to ensuring good financial information. In addition, there should be a regular review (at least annually) of the incomes, expenditures and balances of all restricted funds. Files for permanent restricted funds should be kept in a safe place in the church office. The Diocesan Archivist encourages documentation for such funds are sent to the diocese to further insure access in the future.

5- All expenditure requests should be accompanied by a receipt. For mileage, tolls, parking etc. and details of the trip and its purpose must be included with the request.

6- The final step to take is an annual audit or review. Not only is this required by canon, it is a critical component of stewardship. This is a third party confirmation that the church’s funds have been spent appropriately as well as assurance to donors that their gifts are being used as intended.