Houses of worship are havens from fraud, right? Wrong. The author describes how church workers’ erroneous thinking leaves them particularly vulnerable to fraud and what congregations can do to deter and prevent fraudsters’ attacks.
The telephone rings, and a pastor tells me that his church’s building fund of $180,000 has no balance. I ask him if the church offerings weren’t meeting the budget, and he says that he believes that they were. It seems that the previous long-time volunteer treasurer had stepped down, and then a new member of the church decided to fill the spot. The relieved pastor was grateful. However, after several months, the building fund began to dwindle. The new treasurer said that she had to transfer monies from the building fund to the operating fund.
My investigation revealed a simple scheme. The new treasurer was drawing checks from the building fund made payable to an out-of-state limited liability company. The payee on the checks was a shell construction company, and the treasurer was reverting funds via online banking back to another local bank account. Apparently, the new treasurer had a gambling problem. The church didn’t conduct a background check with the treasurer’s prior church, at which he’d committed the same scheme. The prior church had decided not to prosecute because of its embarrassment.
Anti-fraud education and prevention in churches has been one of my top priorities during my 23 years in the ministry.
I’ve conducted several fraud examinations ranging from a small $25,000 benevolence fund fraud to a $1.5 million denominational credit union fraud. Many believe that others wouldn’t take advantage of people in houses of worship. Of course, fraud examiners know that all organizations are vulnerable to fraud. Churches, synagogues and mosques are particularly susceptible because trust often replaces basic internal controls. And most houses of worship don’t know how to either prevent fraud or deal with it when they discover losses.
Fraudsters in houses of worship commit various schemes. In the $25,000 small benevolence fund case, a church treasurer used her stolen cash to pay off personal loans and also gave some to her family.
In the denominational credit union case, its manager converted customer accounts through false real estate secured interests. In a very sophisticated scheme, she removed money from customer accounts and recorded them as loans from the credit union to the customers from which she’d converted the cash. The credit union manager would exhaust the funds from the customer accounts into her bank account in another county.
To cover herself with the credit committee of the board of directors, she would go to several surrounding counties and file deeds of trust proving that the loans were sufficiently collateralized by real estate. However, the real estate that she used either was already collateralized by another lending institution or didn’t have a mortgage.
I’ve seen external sources such as vendors, payroll services and insurance agents defraud churches. However, most frauds are committed by trusted internal people: pastors, long-term employees and long-tenured volunteers who act as treasurers and ushers. All have some control over cash.
Fraud traumatizes a congregation. Its board is reluctant to press charges with the district attorney and file an employee dishonesty bond. The embarrassed church doesn’t want media coverage because it feels others will believe it wasn’t diligent in its internal controls and oversight. The congregation and leadership feel vulnerable to its ecclesiastical authority. And, of course, donations can plummet.
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