When the offering plate is passed in church on Sundays, most of us assume that our donations are going to be spent wisely. It is one of the last places one would suspect foul play. However, I quickly learned during my first fraud case that white-collar criminals rarely discriminate. Every stash of cash is a target.
Patricia Brown was the treasurer for a small church in a rural Kansas town.* She handled all the donation receipts and expenditures for the church with only limited oversight. At church board meetings, Brown continuously told the members that money was tight and even paying regular bills was difficult. As is typical in a small church, the members rallied and more appeals went out for donations to meet the needs.
Unfortunately, it was Brown – not low donations – that was causing the church financial woes. It was later discovered that Brown was using the donations for personal expenses rather than authorized purposes. Whenever cash was given, she would keep most of it and cover the theft with checks received from other donors. Brown would give the donors receipts with the full amount of the donation on the top copy, and then alter the church’s copy to a lower amount.
For example, Donor A would give $100 in cash, and Donor B would give $120 in the form of a check. Brown would give each donor the correct receipt: $100 to Donor A and $120 to Donor B. She then would report to the church that $120 had been received: $100 from Donor A and $20 from Donor B. She would alter the church copy of Donor B’s receipt from the original $120 to $20. In addition, she made several other irregular transactions, such as cashing family members’ personal checks from the offering plates and then recording the family members as donors. Brown also would make cash payments for “church expenditures” using offering receipts before they were deposited.
As mentioned earlier, this case was my initiation into the field of fraud examination. At the time, I was treasurer for a regional, nonprofit, religious organization. I was a certified public accountant with a public accounting background. I had worked on many audits for all types of organizations: sole proprietorships, corporations, partnerships, estates, trusts, government entities, etc. I knew firsthand the ways management might try to manipulate income or expenses, and the audit techniques to detect these types of creative adjustments. I was competent in my field of expertise and felt I was reasonably prepared to deal with the financial questions and concerns of the nonprofit entity. As it turned out, I was wrong.
Fraud is the intentional deception and manipulation of records and information to cover up defalcations. In my opinion, the typical CPA approach is inadequate to detect or investigate fraud. CPAs must add the investigative and interviewing techniques of the Certified Fraud Examiner to properly detect and document the nature and extent of a suspected fraud.
As the treasurer of the nonprofit religious organization, I oversaw all financial and accounting functions of the churches in our region. In addition to reviewing accounts payable, payrolls, and general ledgers, I coordinated receipts from the local churches and supervised all audits to ensure policies and procedures were followed. It basically entailed reviewing what donations were received, and how they were recorded and distributed for church-directed activities.