One of the last places you would expect embezzlement is within the financial offices of a Church. However, if you search the news for “church embezzlement”, you will find it is actually becoming a very common event.
Many of these stories begin with a financial crisis. An employee has a mortgage that can’t be paid, a gambling addiction, or a sudden medical bill. They notice that the church coffers are not well-guarded or monitored. They take a little, telling themselves it is a “loan” and they will pay it back. Except there is another crisis, and so they take a little more. Next month I will pay it back, they tell themselves again. Another crisis. The cycle continues. The debt snowballs. Suddenly after a year, the employee has stolen $100,000 from the Church, without ever intending to.
Even the best people can still make mistakes. We are all human. While can’t stop people from making bad choices, we CAN install safeguards to ensure that they aren’t tempted in the first place, or that any malfeasance is quickly detected before it gets too bad.
Here are some basic safeguards that can help prevent embezzlement:
- Separation of roles is critical. For example, a person who writes checks should NOT be the same person who enters data or who reconciles the bank statements.
- It is important to cross-train and rotate positions in payroll. A new set of eyes may notice accounting irregularities that the old person was attempting to hide.
- Checks should be kept in a secure place with limited access.
- Checks made out to “cash” or the signing of blank checks should not be allowed.
- Consider requiring two signatures for checks. Never pre-sign checks.
- If you have a church credit card, you should have a policy explaining who can use it, how much can be spent, what charges are allowed, how expenses must be substantiated, and the time limits for submitting documents. Personal expenses should not be allowed.
- Background checks should be completed on employees and volunteers who handle financial records, if possible.
- Cancelled checks should be reviewed monthly to verify the payee and the amount. Embezzlement is sometimes hidden as a payment to a fictional vendor, or as an “Other” expense in the books.
- Require people to use their PTO. If someone refuses to take any leave and won’t let anyone touch their work, it may be because they fear the fraud will be discovered while they are gone.
- Consider having periodic audits by outside, independent auditors. The average fraud or embezzlement goes at least two and a half years without being discovered, so you could be saving a lot of money if you catch something early.
Clergy Financial Resources serves as a resource for clients to help analyze the complexity of clergy tax law, church payroll & HR issues. Our professionals are committed to helping clients stay informed about tax news, developments and trends in various specialty areas.
This article is intended to provide readers with guidance in tax matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular tax technique. Every effort has been made to assure the accuracy of the information. Clergy Financial Resources and the author do not assume responsibility for any individual’s reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular tax planning technique. If you are seeking legal advice, you are encouraged to consult an attorney.
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