These tools are provided by The Evangelical Council for Financial Accountability. With its mission of Enhancing Trust, ECFA now certifies nearly 2,300 Christ-centered churches and ministries based on its high standards in financial management, governance and gift administration. ECFA is also a leading provider of church resources, including the free ChurchEXCEL subscription at ECFA.church.
While this short summary is not meant to be all-inclusive, it will help you assess your current situation and determine if additional precautions or considerations may be necessary to protect your church.
Basic Fraud Prevention Steps
- Ethical “tone at the top”
- Adequate segregation of duties
- Involvement of independent CPA or internal audit
- Proper review of financial information by ministry leaders and board members
- Conflict of interest policy and annual disclosure
- Whistleblower reporting policy
- Cross training of financial duties and mandatory vacations
- Communication and enforcement of a zero-tolerance fraud policy
Behaviors and Actions
Basic checklist of behaviors and actions on the part of a member of the finance team that may serve as warnings of a possible fraud environment:
- Never takes a vacation
- Is controlling or does not allow others to help with his or her tasks
- Has unusual mood swings
- Has known financial pressures such as spouse job loss
- Has known personal problems such as divorce or serious medical issue for self or family member
- Appears to be living beyond his or her means
- Displays a defensive attitude
- Vocalizes dissatisfaction with job or pay
- Is messy/disorganized
- Does not prepare timely reconciliations or has unusual reconciling items
- Has insufficient or missing documentation
- Is delayed in preparing financial statements or other information
- Reports inaccurate financial information
ECFA offers 9 Essentials of Avoiding Church Fraud as a fraud resource. This free eBook requires one to sign on at ChurchEXCEL.org/XPastor. Enrollment in ChurchEXCEL is free.
When Embezzlement Is Discovered
When a church discovers embezzlement within the ministry, the following issues should be considered with the assistance of professional advisors:
- Identify the amount of the loss. While it may not be possible to identify the exact amount embezzled, the church should perform adequate due diligence in this area, even if this takes weeks or months. If the ministry does not have staff with the knowledge and experience to assess the loss, it may be appropriate to engage a Certified Public Accountant (or an in-country accountant if the embezzlement occurred internationally) or forensic expert to perform a specific audit of the loss. This differs from a full audit. The independent accountant should document the amount of loss and how it occurred. The church board has a fiduciary responsibility for all funds, and part of this fiduciary responsibility is to document losses in the case of embezzlement.
- Review policies and procedures. After the method of embezzlement is documented, a determination should be made concerning any inadequacies in existing fraud-prevention policies and procedures. The review should include internal policies and procedures (such as check-signing authority, cash handling procedures, depositing of funds, approval of disbursements, etc.) and external controls (this may include an internal audit and an external audit by a CPA or in-country accountant). Changes should be made immediately to policies and procedures, as may be appropriate.
- Insurance coverage. Determine if the church has any insurance to cover the loss. If so, the question of legal action may be in the hands of the insurance carrier.
- Restoration of funds. If there is no insurance to cover the loss, determine whether or not the church can recoup any or all of the loss, and decide how to accomplish the recovery. Individuals who embezzle money usually have little, if any, of the embezzled money still in their possession (although they may have some assets that were purchased with the embezzled funds or with other funds). In other words, those who embezzle tend to spend the money as they go. However, under the threat of legal action, most embezzlers will agree to enter into a repayment agreement over several years, and sometimes will sell certain assets to repay the amount owed.
- Public relations. Determine if the church will make a public statement concerning the embezzlement. Some churches will prepare a carefully worded public statement but will not release the statement unless the matter gets into the media. If it becomes necessary for the church to publicly comment on the matter, the use of a public statement will prevent various versions from being issued by board members or others representing the church.
- Reporting responsibilities. If the embezzlement involves the lead or executive pastor, or certain other key officials, the church should seek knowledgeable legal or tax counsel to assess potential liability under the intermediate sanction rules prohibiting excess benefit transactions. Failure to report properly may subject the church, its board, and the individual to significant tax penalties and repayment requirements even beyond the amount embezzled. This constitutes a contingent liability.
This is a Tool from the Book and Workshop on
Predators in the Church
About the Book
5 E-Books with 38 Tools
Predators bring devastation to your church and the lives of your congregants. The Predator in the Church series has over 300 total pages and will help you change your thinking about predators and take steps to prevent them:
- The Introduction to Wolf Thinking presents an overview of the working concepts and the prevalence of predators.
- The Case of the Wolf at WheatFields is an insider’s perspective as Executive Pastor Dan Black at WheatFields discovers a predator.
- The Case of the Active Shooter walks through national news about the First Baptist Church in Sutherland Springs, along with tools for church safety.
- The Case of the Child Molester presents national news about an incident at NewSpring Church of South Carolina with tools to avert child predators.
- The Case of the Church Embezzler documents national news stories from six churches of all sizes along with tools to prevent fraud.
May this material help avoid the painful tragedy of a predator in your church. Do all that you can to protect your people from the wolf. Author of the series is David Fletcher. For 35 years, Fletch led churches from 1,000-8,000 members, single and multisite, churches with camps, schools, apartments and cafés. His other books include People Patterns and Smart Money for Church Salaries.