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Posted by: Charles P Myrick CPA Posted on: Oct 10 2019 Posted in: church management, church fraud

Is Your Church Vulnerable to Fraud?

In my work with church audits, I sometimes have to report evidence of possible fraud – questionable charges, missing money, etc. It's a tough report to make since no one wants to accept that financial fraud takes place in a church. How can church leaders enact measures to prevent internal theft and fraud without making it seem that no one can be trusted?

 

Policies and Procedures Can Prevent Church Fraud

Whether you are trying to prevent planned and intentional theft or the occasional circumstance where someone gives in to temptation, a clearly stated policy on how to handle church finances is an excellent place to start. These procedures might not all be comfortable to take, but they are necessary if you want to avoid fraud.

1. Segregate Financial Duties

Many small churches have the same person handle various financial duties. For instance, the same individual might write checks and reconcile the bank statements. A better way is for one person to handle the check writing, and another the bank reconcilement. Separating the duties makes it difficult for an individual to commit fraud.

2. Don’t Let the Same Person Authorize Expenses and Sign Checks

Does one person approve spending and sign the check? People can come up with fake expenses to get money from the church. You can avoid this problem by having two people sign a check, or different people authorize and sign.

3. Make Your Financial Team Take a Vacation

A fraud prevention technique used in other sectors is advisable for churches as well. When people are committing fraud, they don’t want someone else doing the books. The people who handle your books should take a week of vacation each year. During that time, someone else will take over. If your financial team doesn’t want to take a vacation, it’s a red flag.

4. Run Background Checks on Employees

If someone is going to be close to the church’s money, a background check is critical. In many instances, just the requirement for a background check will discourage an untrustworthy person. Bottom line? Your church has the same need for screening employees as most other organizations.

5. Double up on Cash Duty

Churches deal with a lot of cash in the collection plate, and that cash can be very enticing. A sensible procedure is to use a collection team. For example, have two people gather the collections and then two more count and record it. Then, have someone else deposit it. You make it difficult to steal when no one person is alone with the cash. When it is time for someone to make the deposit, there is a record, so that any discrepancies would be detected.

6. Have a Petty Cash System in Place

Petty cash needs formalized procedures for storage and access. A simple system is to store it in a safe and require checks and balances for withdrawing it. For example, when petty cash is used, a receipt should be submitted for the exact amount and verified by another person to make sure the purchase was legitimate. A record of all expenditures should be kept.

7. Use an Independent Auditor

Use an independent auditor at least one time a year to make sure that everything is in order. Your auditor will look for signs of church fraud and research any strange charges or missing money. The audit process will detect and prevent instances of fraud. Most employees will think twice about stealing from the church when they realize that you use an independent auditor.

If you do discover that fraud has been perpetrated in your church, report it. Unfortunately, even when found, most of the church-related fraud goes unreported. The problem is that individuals who intend to engage in fraud and theft of church resources know about the reluctance of church leaders to file reports. Such perpetrators take the chance because they are confident that they can get away with it.

When it comes to handling a church’s money - budgeting, accounting, dispersing, planning, saving, endowing - it is critically important that these tasks be managed with knowledge, integrity, and professional expertise. Volunteers and staff must be involved, but financially sound churches do it with the guidance of a qualified professional.

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Charles P. Myrick is a Washington, DC accounting firm offering specialized CFO services to churches and religious institutions. Myrick CPA was voted Best Accounting Firm in DC, 2016 and 2017, Washington City Paper Readers’ Poll. Request a confidential consultation, today.

 

 

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