Pilfering in the Pews: What One Cagey Church Treasurer Taught Me

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.

Simple, right? For the most part, it was. Minor errors usually were detected, adjustments were made, and instructions given to the local church treasurers on how to avoid similar mistakes in the future. Most treasurers were volunteers selected by church members; they did not have any formal accounting or financial training. They mostly relied on my office to assist them during audits to correct any mistakes.

This was the normal process, and considering the religious atmosphere under which the work was being performed, it was adequate. Most of the treasurers were so concerned about making a mistake with “the Lord’s money” that they would call me first for instructions on handling unusual transactions. However, as I would later discover, this atmosphere was ideal for one particular fraudster.

The First Sign of Wrongdoing

During a routine audit of the church where Brown served as treasurer, the auditor found several receipts to donors that appeared altered. These receipts were matched to the original donor envelopes, which revealed that the donors had given more money than what had been recorded on the receipts, or that the original amounts had been recorded and then changed to smaller amounts for reporting purposes.

The auditor that noted these irregularities was a recent college graduate with little experience in the accounting field, but even he knew the apparent alterations were significant red flags. As his supervisor and the only CPA on staff, I was called to review the matter. Using our accounting and auditing backgrounds, we quickly convinced ourselves that a theft of church funds had occurred. Our course of action was clear. We must confront the church treasurer with the facts and seek a confession (Mistake No. 1). Later I would learn that this was the first of many errors I would make because I was not trained to conduct a fraud examination. These critical issues simply were not taught in the conventional accounting and auditing courses at college or in the typical public accounting environment.

The Investigation 

I called Brown on the phone and told her I needed to discuss an important matter with her. Naturally, she was curious about my intentions, but I did not explain the entire matter over the phone. Instead, we arranged to meet at her home (Mistake No. 2). To ensure the atmosphere was right, I asked the church’s minister to accompany me (Mistake No. 3). After all, these were serious charges, and we were dealing with a religious organization.

Upon arriving at Brown’s home and after making obligatory small talk, the three of us sat down at her kitchen table to discuss the issue. I disclosed the whole matter, but I never accused her specifically (Mistake No. 4). I told her I knew money was missing from the donations, and the altered receipts proved it. Then I asked her if she had any knowledge of the missing funds. I thought I was sparing her the indignity of not having a chance to confess.

Imagine my surprise when not only did she not confess, but she went on to say how she had tried so hard over the years to make ends meet for the church budget. According to Brown, she had given more of her time and money to the church than anyone else. She was the glue that held the church together. Brown also explained that the apparent alterations on receipts were her attempt to not embarrass the members in the church who wrote down the wrong amount on their donation envelopes. This, she claimed, was a constant problem. Often the older members in the church would write down $120, but only enclose $20. I left from the interview not knowing exactly what had happened. In my mind, the evidence was still convincingly clear, and yet, Brown had not admitted her culpability in the least. Why?

From the start, I had played the fraudster’s game. It is uncomfortable to confront individuals regarding wrongdoing. Fraudsters know this and count on it. To meet this challenge, a fraud examiner must know as much about a case as possible before conducting an interview.

Mistake No. 1 I should have developed the necessary documentation prior to confronting Brown. As I now know, the methodology needs to develop from the general to the specific. My first action should have been to contact the donors and determine the actual amounts given. I should have developed a history of the giving patterns of each individual donor and compared this with the records reported in the church books. A history of the giving patterns for the church as a whole during previous years also would have been helpful. We later determined that the fraud had been going on for several years. In fact, previous audits had raised issues about the church’s loss of funds; however, no one ever had pursued the issue. I also should have interviewed the church members, starting with the least likely and moving to the most likely involved. The interview with Brown should have been saved for last.

Mistake No. 2 Meeting at Brown’s home gave her the upper hand. At the time, I thought this would make the situation more comfortable. I felt it would be easier for her to confess in her normal surroundings, because I had the documentation to prove her theft. I now know this is just the opposite. Fraudsters are more likely to confess when they are the most uncomfortable. Sitting at home in familiar surroundings with no specific allegations laid before her is not going to present a stressful situation for someone stealing money from a church. I should have interviewed Brown in an office environment with few amenities to distract her from the questions being asked.

Mistake No. 3 I should not have taken the minister to Brown’s interview. Again, my goal was to obtain an unconfrontational confession. (That critter just does not exist.) According to the “Fraud Examiners Manual,” published by the Association of Certified Fraud Examiners, interviews are best conducted out of the sight and sound of friends, relatives, or fellow employees. 1 Fraudsters are reluctant to furnish information – especially self-incriminating information – in the presence of others. If possible, one-on-one interviews are the most desirable during a fraud examination.

Mistake No. 4 I should have disclosed bits and pieces of the information I had obtained about the theft without “spelling out the total.” Disclosing general information but telling the fraudster you know the whole story is better than giving out specifics. If you get too specific and some of the details are wrong, the fraudster will know and be able to adjust his story accordingly.

In addition, if you plan to accuse someone, be direct and make an accusation. The longer fraudsters are allowed to purport their innocence, the harder it will be to obtain a confession. With each half-hearted excuse Brown offered, I should have interrupted her or countered her excuse with more relevant data. Using questions that assume the suspect’s guilt also would have helped. For example, “I am trying to understand why you would have done this, can you help me understand?” rather than, “I know money is missing, do you have any knowledge of it?”

The Result 

I eventually went back and corrected the first mistake; the effects of mistakes two, three, and four left me the only available option of documenting with hard evidence the defalcations that had occurred. A confession was no longer an option. Although Brown did admit to mixing personal and church funds, she never fully confessed to stealing donations and altering the books.

We had calculated the extent of the fraud to be from $50,000 to $80,000 covering a four-year period, and because Brown never confessed, we were forced to prove the dollar value of the evidence we had obtained to the bonding company. This was difficult, and the bonding company used Brown against us to lower the amount of the claim. Using her own admissions of mixing personal and church funds in the church bank account, the bonding company tried to confuse the issue of how much money actually belonged to the church.

My ignorance of proper fraud examination techniques prevented the confession that could have led to a prosecution. The church eventually settled for $45,000 from the bonding company, but Brown never was prosecuted. In the seven years since this case, I have become a Certified Fraud Examiner and have conducted more detailed investigations and interviews with much better results. Only from the CFE material have I found the appropriate tools necessary to detect, develop, and document cases of fraud.

Timothy B. Shedd, CFE, CPA, CIA, is the audit services section manager at Mason & Hanger Corp., which operates a U.S. Department of Energy nuclear weapons facility in Amarillo, Texas. He also performs tax, auditing, fraud examination, and consulting services. 

1 Fraud Examiners Manual, Interview Theory and Application, Third Edition, Vol. 3, page 3.215. See pages 3.201 to 3.285 for complete information on this topic.