Church Fraud: What Every Pastor Should Know


Fraud can occur at any organization, but churches are extremely susceptible due to their trusting nature. Church leaders are responsible to God and to their congregation to safeguard the ministry's assets. To do so, there are a few things every pastor should understand about fraud.

It CAN happen to you.

Unfortunately, churches experience fraud to nearly the same extent that secular organizations do. The potential for fraud must be taken seriously. It can go undetected for months or even years. Then, when fraud is discovered, churches often decide not to report it to the police to prevent bad publicity.

What is fraud?

Fraud is an intentional deception made against an individual or organization for personal gain. If the right set of circumstances is present, it can occur at any organization, at any time, by any individual. While there are many types of fraud, churches most often experience embezzlement, defined as the fraudulent appropriation of money or property for one’s own use. No organization — including a church — is automatically exempt from this fraudulent behavior.

What causes fraud?

Three elements are often needed for fraud to occur. This is called the fraud triangle. The first element is pressure on an individual to steal. Pressure may come in many forms — medical bills, addiction problems, greed, excessive debt, and lavish lifestyles, to name a few. To assume a Christian would not be susceptible to any of these may be naïve. Even the strongest Christians can fail if the pressure is great enough and they take their eyes off Christ. In fact, personal financial trouble is the main reason people steal at work. Because of this, it's a good idea to run credit reports on new hires.

A second element is rationalization. Rationalization occurs when a typically honest person makes excuses to commit fraud. Many times the individual will justify the theft by calling it something else. They may rationalize that the money really is owed to them and so they will take what is coming to them. Other times, a person may want to borrow some money from the church, but does not want the embarrassment of asking for a loan. They rationalize, “It’s just a loan. I will pay it back as soon as I can.” Rarely is the money repaid. Instead, the fraud tends to accelerate as the person gains confidence from getting away with it.

The third element is opportunity. This is the only part of the triangle an organization can control, but it is the one many churches ignore.

Churches try to foster an atmosphere of trust and forgiveness because they do not want any brother or sister in Christ to feel they are not trusted. Unfortunately, this often means too much leeway is given, providing the very opportunity a fraudster needs in order to commit a theft. A church should proactively develop internal controls to prevent undesirable acts against the church.

Proper safeguards can prevent fraud from taking place.

By following recommended prevention methods, the risk of fraud happening can be drastically reduced. Having safeguards in place demonstrates a church is serious about being a good steward of God’s money. Some procedures can be implemented to help prevent any one person from having the opportunity to commit a fraud. These are internal controls:

  • Segregation of duties and transaction authorization. Make sure more than one person is responsible for the collection of the offerings, counting the money, depositing the money in the bank, and reconciling bank statements. Although segregation of duties can sometimes be difficult with a small staff, it’s crucial to have at minimum a second individual to help perform duties. Church Mutual Insurance Company, America’s leading church insurer and partner of AGFinancial, recommends the following:
    • Two individuals should be required to sign larger checks, more than $1,000 for instance. All major purchases should require approval by the board and/or congregation. It’s not recommended to use stamps with the pastor’s signature.
    • Transfer of large sums into or out of different accounts should not be permitted without written consent of two people.
    • Banks statements and other statements of accounts should be verified independently of the person(s) who have check-writing or other account authority.
    • Create a standardized form to document any cash handling, requiring all cash withdrawals to have two signatures.
    • Do not allow the same person to count the offering each week. Set up a rotation of two or more different individuals each Sunday.
    • Deposit cash as soon as possible after services, using your bank’s night depository. If none is available, use a safe. Stamp checks “For Deposit Only.” Cash should never go to anyone’s home.
  • Physical safeguards. It's a good idea to stow petty cash in a safe. Establish a procedure for its use and disbursement, minimizing access and treating it like a bank account with regular audits and reports. In addition, limit the handing out of church credit cards. To increase building security, assign a unique code to each church employee for keypad entrances. Establish a procedure for the use, distribution, and collection of keys. Keep a list of who is given a key, when, and for what activity. Also consider posting security cameras in both conspicuous and hidden areas.
  • Annual CPA reviews or audits. These can be expensive, but not detecting fraud is far more costly. Present the results to your governing body. Prepare and review monthly reports as well. At a minimum, engage a CPA firm to perform reviews of high fraud risk areas such as cash management and assessments of internal controls.

What to do if fraud occurs:

If you suspect fraud within your church, do not share this information with anyone involved in the process. Remember, the fraudster can be the most trusted member of your staff. Instead, talk to a local accounting firm that has an audit department and they will tell you what your next steps should be. If fraud has occurred, the best response is to involve the police. Although churches are often reluctant to do this, studies show that once a person has committed a fraud, they rarely stop on their own. If they simply get fired, they will likely go on to other organizations and commit the same crime. If the individual is prosecuted and convicted, the facts of the case become public knowledge, offering several benefits:

  • Experiencing consequences may help the person stop committing fraud.
  • Reporting the crime gives the church an opportunity to recover some of what was stolen. In fact, insurance companies usually require prosecution to take place for a church to be able to collect coverage on stolen goods.
  • The church will be allowed to warn other employers of the fraudster. If they are not prosecuted, you will not be able to inform their next employer of the reason they were fired, and the cycle could continue.

To learn more about how to protect your church from fraud and other hazards, call 866.621.1787to speak to a church insurance consultant.

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