What is fraud as it relates to the church? Fraud encompasses a broad range of corrupt activities. It is generally defined as a misappropriation of assets through mishandling of assets, fraudulent reporting and corrupt acts. Fraud is a crime. Yet, many of our churches have faced this issue in silence. They have chosen to “extend grace” to the perpetrator or demand restitution. Rarely are these fraudulent acts reported to the authorities.
Many churches fail to report fraud if it occurs in senior leadership because of the emotional toil it can take on the church. It is a moral failure and trust is broken with the leadership and the members. It takes a significant long-term negative affect on the congregation if it is not addressed quickly and effectively. The loss of trust erodes the foundation of the ministry. Congregants began to withhold their gifts or leave the church which places the ministry in crisis mode.
Small and medium sized churches are the prime targets for individuals to commit fraud. Small churches often have one or only a few volunteers willing to provide financial management support for the church. These environments have limited segregation of duties and provide ripe opportunities for misappropriations or stealing. Avoid these 3 red flags:
(1) One person has too much control and too much access to church funds.
(2) Only one person counts and deposits the money received.
(3) One person has access and the authority to sign checks.
Those who have the highest level of authority and the most access to church funds pose the greatest risk because they have more opportunity. There are many legal cases of fraud in churches by both genders, all ages, races and ethnicities. Fraud frequently goes undetected because we give too much control or access to individuals and use trust as an insufficient substitute for internal control procedures. Most pastors and congregants are not trained to recognize financial irregularities therefore basic internal control procedures must be implemented.
Brotherhood Mutual Insurance reports that embezzlement in churches is on the rise. It is reported that more than $70 billion dollars are stolen from churches worldwide each year and 80% of fraud is never reported. It has been said to me far too many times, that we know that individuals are “skimming” off the top within our church structure from the top down. Misappropriation is a fraudulent act and should not be covered up in our church environments.
Cynthia Gordon-Floyd is a certified public accountant and founder of Willing Steward Ministries, LLC. Willing Steward Ministries (http://www.willingsteward.com) is a financial consulting and accounting firm for churches and other faith-based non-profits and specializes in Bible-focused financial practices, pastoral compensation issues, IRS compliance, and other financial needs specific to churches. Cynthia is a graduate of Lake Forest College and received her Master of Business Administration in Accounting from DePaul University. She is a Steward and the Financial Secretary at the First AME Church of Manassas in Manassas, Virginia.