4 Tips to Prevent Fraud at Faith-Based Organizations

Contributions – whether by cash, check, or online giving – are the lifeblood of faith-based organizations. Many do not realize how often these donations get into the wrong hands.

There are primarily two types of theft that occur in faith-based organizations –larceny and skimming. Larceny occurs after the money has been counted, deposited, and recorded in the books of the organization. Skimming occurs when donations never get logged in the books; that is, they go missing before ever being recorded. It is the counting and depositing process that opens the organization up to skimming, and that is where fraud can be most difficult to detect.

Faith-based organizations need to take steps to ensure that contributions make it into the bank in the first place.

Let’s start with the ‘who’ and the ‘why.’ Who would steal money from the faithful? Answer: anyone with access and a reason. I am not suggesting that everyone is a thief, but there are known characteristics of the opportunity and the perpetrator. The following are some of the findings of the Association of Certified Fraud Examiners (ACFE) Report to the Nations on Occupational Fraud and Abuse:

The demographics indicate that the majority of perpetrators are between their mid-thirties and mid-fifties in age, are educated, and have access to the money.

The average length of time the fraud is committed is eighteen months.

Those organizations that do not have independent audits annually are most vulnerable, as the fraud could go undetected for long periods of time, increasing the likelihood of significant losses.

The smaller the organization, the more likely theft will occur

Detecting fraud is difficult. In order to protect against skimming, we have to apply business best practices to faith-based organizations. Taking action to prevent fraud is a good first step. Outlined below are a few controls that can have a big impact.

Ensure that at least two people are with the money at all times.

While this sounds like common sense, it has to be followed without exception if it is going to work. There are surveillance videos online and news stories that show that money can go missing in a matter of seconds. The control is not effective if one person takes the money from the collection plate to a place of counting or the safe after worship. It is not effective if one person goes to copy the checks and leaves another person in the room with the cash. It is not effective if one person takes the money to the bank after it has been counted and locked in a bank bag. I have seen several instances where these controls have been violated and the money has been stolen.

Separation of duties by design and not by happenstance.

The reason that I make this distinction is that most faith-based organizations are short on staff and rely heavily on volunteers to perform some or all of the functions, particularly the smaller and more vulnerable organizations. There is a likelihood that those designing or performing these activities don’t have experience in business-based policies and internal controls. Unfortunately, it is not common for organizations to design and implement processes and procedures to ensure effective controls are in place. Even more rarely do they inspect them to see if they are working properly. Written policies and procedures help remind those assuming governance roles and volunteers who perform services for the organization why the processes exist and allow for consistent application of safeguards.

Treat all opportunities for giving the same as collection plate giving.

While the largest amount of giving usually occurs during worship services, there are other times when money comes into the organization. Mid-week suppers, fundraising activities, day schools, thrift stores or other outlets need the same level of control and asset safeguards. Often these sources are not viewed as generating a significant amount of money. Therefore, they provide one of the greatest opportunities for skimming because of the lack of attention to the detail of counting and depositing.

Provide oversight and reconciliation of online giving.

Online banking makes our personal lives easier, but in a faith-based organization, convenience does not always include effective controls. The rapid increase in online giving creates a new challenge for safeguarding of contributions. Separation of the duties in processing and reconciling the contributions is essential.

I recommend that faith-based organizations implement internal controls like the ones outlined above to prevent skimming and larceny from taking place. You may also wish to read this recent article published by the AICPA Not-for-Profit Section: An Ounce of Prevention: Combatting Fraud in Not-for-Profits. You can find additional articles and tools, such as downloadable templates and sample policies, in the AICPA Not-for-Profit Section’s Governance Resource Library.

People make contributions to support their house of worship out of the goodness of their hearts. Let’s take steps to ensure that those funds end up in the right hands.

James B. Jordan, CPA, CGMA. Mr. Jordan is the author of Financial Management for Episcopal Parishes. He is an Adjunct Professor of leadership and parish management at the General Theological Seminary in New York, General Theological Union at the University of California at Berkeley, and at Emory University in Atlanta. He is a CPA and CFE who specializes in faith-based organization auditing, accounting, and consulting. Mr. Jordan maintains a blog at jamesbjordan.blogspot.com and is on LinkedIn and Twitter.

Collection basket image courtesy of Shutterstock

4 Tips to Prevent Fraud at Faith-Based Organizations

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