Fraud and embezzlement: Protect your church


January 24, 2014

I’m going to address an unpleasant and uncomfortable topic: fraud and embezzlement in churches.

An article in Forbes magazine cited a recent study that found that “ecclesiastical crime” accounted for an estimated $37 billion lost in 2013—about 6 percent of the total amount given to churches during that period. Compare this to the $32 billion spent on the work of Christian missionaries.

Meanwhile, a Washington Post investigative report about fraud in nonprofit organizations pointed to a security firm’s study of major embezzlement cases, which found that “2012 was a blockbuster year for employee theft in the United States, accelerating over the shocking pace set over the past couple of years.”

As much as we’d like to believe churches are immune, statistics indicate otherwise. A survey by Church Law & Tax Report found that more than 5 percent of all churches have had funds embezzled at some point in their history. The survey also found that 59 percent of the time, a volunteer worker was the embezzler, and 41 percent of the time, a paid staff member did the embezzling.

The lowest rate of known embezzlement was in churches with worship attendance of less than 250; the highest rate was in congregations with worship attendance of between 750 and 1,000. There is even a website devoted to compiling reports of church embezzlement. I visited it recently and found stories about Minnesota cases in 2013 with loss estimates ranging from $60,000 in a small rural church to $250,000 in a Twin Cities regional church to $670,000 in the Archdiocese of Saint Paul and Minneapolis. No matter how big or small the dollar amount, an incident of embezzlement can divide congregations and damage more than a church’s bank account.

I hope that you will review your church’s procedures for counting offerings, accounting for donations, authorizing expenditures, reconciling accounts, and financial reporting. There is a list of resources at the end of this article to help you establish good internal controls and sound procedures for handling church funds.

Safeguards against embezzlement and fraud preserve accountability and protect a church’s ministry. Talking about this can be uncomfortable, and some will say that even discussing it indicates mistrust of staff and volunteers. I disagree. I think that having good internal controls helps protect the reputations of people who handle the funds. Good internal control procedures indicate that you care about the church’s ministry and the people who support it with their prayers, their labor, and their money. It shows that accountability, responsibility, and transparency are important.

What can you do to reduce the possibility of embezzlement? Here are three steps all churches can take:

  • Establish a strong system of internal controls. Use the resources listed below, and talk to a member of your church who is a CPA or accountant about strengthening internal controls.
  • Do background checks and reference checks on people who handle money or make financial decisions.
  • Conduct annual audits. The best option is an independent audit conducted by a CPA. If an independent audit is too expensive for your church, the General Council on Finance and Administration has an excellent Local Church Audit Guide. The United Methodist Book of Discipline requires people who handle funds to be bonded. All churches should obtain this insurance coverage in an amount comparable to what they might lose if embezzlement occurs.

If you think your church has been a victim of fraud or embezzlement, contact your insurance company and local authorities immediately and secure all computers and paper records. Consider hiring a CPA or a certified fraud examiner. Your insurance company and local authorities can guide you in the process of determining whether a crime has occurred and the extent of the loss.

Embezzlement is a very real issue in churches, but establishing and following sound financial procedures can help ensure that your congregation never falls victim. Protect your church so that it (and you) can focus on what’s really important: Helping people experience God’s love and grow in their discipleship.

Resources

Your insurance company should have checklists for preventing fraud or embezzlement. Here are some additional resources:

—Websites of these companies that specialize in insuring churches:

  • unitedmethodistinsurance.org
  • churchmutual.com
  • guideone.com
  • brotherhoodmutual.com

The Local Church Audit Guide from the General Council on Finance and Administration

Records Retention Schedule from the United Methodist General Commission on Archives and History

Finance: Handling God’s Money in the Church (part of “Guidelines” series, published by Cokesbury)

United Methodist Church Financial Records Handbook (published by Cokesbury)

Barbara Carroll is director of finance and administration and treasurer for the Minnesota Annual Conference of the United Methodist Church.




Minnesota Annual Conference of the United Methodist Church

122 West Franklin Avenue, Suite 400 Minneapolis, MN 55404

info@minnesotaumc.org

(612) 870-0058