Featured Columns

Written by Dan Busby
From his column God, Government and Me—Money in the Church


“We’ve never had any fraud at our church, so why should I read this article,” you might say. But allow me to make two observations: (1) Most churches have probably experienced fraud but were not aware of it; and (2) If a church hasn’t experienced fraud, it probably will in the future. So, read on.

It is impossible to eliminate the possibility of all fraud from your church. To do this would require a small army of employees and/or volunteers rotating through different positions to separately review each transaction—a system of checks and balances that would bring the administration of almost any church to a grinding halt. This would not be effective stewardship. But this doesn’t mean we shouldn’t try. Rather, our goal should be to find a reasonable balance between fraud prevention and fraud risk. Following these five steps will help minimize the fraud potential at your church.

If a church hasn’t experienced fraud, it probably will in the future.

1. Control the Opportunity for Fraud.

Fraud generally occurs when three elements are present: (1) A need – a person with access to church resources has a financial need. (2) An opportunity – a person with access to church resources sees an opportunity to take church funds or assets, and believes he/she will not be caught. (3) A rationalization – a person rationalizes the act, so he/she feels comfortable committing the fraud (e.g., “It’s only a short-term loan”).

Of these three elements, churches have control over only one—opportunity.

2. Focus on Where Major Fraud May Occur.

Certainly fraud can occur during the offering receiving, counting, and depositing process—especially regarding electronic giving. But most church fraud occurs after the funds are in the church bank account, not before.

Can you readily identify the three areas in which your church is most susceptible to fraud? If not, risk of fraud may not be high on your radar screen. If you can identify those top three risk areas, your next step is to be sure the controls and segregation of duties are especially high in these areas (see #3 below).

3. Implement Sound Internal Controls.

At minimum, the following measures should be in place:

  1. Double Approval of Expenses – This should apply at least for expenses over a predetermined level. The senior pastor or family members should not be involved in the approval (or check signing) process.
  2. Multiple Review – Bank reconciliations, credit card statements, and expense reports should be reviewed by more than one person.
  3. Background Checks – Any staff or volunteer who significantly interacts with financial transactions should receive a background check.
  4. Segregation of Key Financial Duties – When only one person has control, with no accountability, over an entire accounting transaction, fraud is possible. The goal should be to segregate the following steps to reduce the possibility of fraud:
    • Receiving funds—physical and electronic;
    • Preparing bank deposits;
    • Reconciling bank and investment statements;
    • Posting receipts to the contribution system, and posting entries to the general ledger;
    • Approval of expenditures;
    • Writing checks/sending electronic payments; and
    • Signing checks.

When one person performs more than one of these steps, the church should add internal control steps as an offset fully segregating all of these duties.

4. Provide Special Approval for the Senior Pastor and Key Staff Members.

The occurrence of church fraud is troubling at any staff level, but fraud committed by the senior pastor, staff pastors, or others in key ministry positions is more likely to shake a church to its foundation. While approval of most expenditures can be handled routinely, utilizing strong internal controls, as outlined in #3, is vital. All expenses, perhaps over a certain dollar threshold, incurred by or approved by senior staff should receive extra scrutiny. It may be appropriate for a member of the church board to provide this extra oversight.

5. Perform a Fraud Risk Assessment and an Internal Audit.

While a fraud risk assessment provides a macro view of risk, an internal audit goes a step deeper into the financial transactions of a church.

Both the fraud risk assessment and the internal audit should be performed by one or more non-staff members so independent assessments may be made.

The best outline for a fraud risk assessment and an internal audit are found in Integrity at Stake: Safeguarding Your Church from Financial Fraud, by Rollie Dimos.

Closing Thought

God is glorified when we faithfully administer church resources. When fraud occurs, it is generally an indication that we have let down our guard. Establishing safeguards won’t necessarily stop fraud from happening in your church, but they can provide a system to help deter or make it easier to detect. When it comes to maintaining integrity within the church, it’s worth the extra effort.

Dan Busby is a certified public accountant and president of the Evangelical Council for Financial Accountability (ECFA).

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