Fraud Prevention Quiz: What Would You Do to Prevent Fraud?
The following scenarios are actual cases of church fraud and embezzlement. Read each one and decide what you believe should have happened to help prevent the wrongdoing that took place in these situations.
You also may want to listen to the free webinar, Church Fraud: Keeping Thieves and Embezzlers Out of Church Finances, in which Matthew Hirschy, vice president and treasurer at Brotherhood Mutual, and Tom Lichtenberger, senior manager of property claims, discuss how church leaders can protect their churches with policies and procedures that can help prevent church crimes. You will find links to the webinar and other resources below. The correct answers to the quiz are printed below.
Scenario #1: Pastor in charge of finances
The church board put the pastor and his secretary in charge of church finances. Originally, the board also assigned a trustee as a signatory on the church bank account, which he occasionally reviewed. After the trustee began to question the pastor’s practices, he had the trustee removed from the account, giving the pastor total control over the church’s bank account and credit cards. Subsequently, the pastor gave himself a $5,000 raise and a $15,000 bonus, followed the next year by a $22,000 bonus. By the time the board confronted the pastor, he had managed to spend more than $200,000 on clothing, meals, vacations, and a number of other purchases at some impressive stores and restaurants.
What risk management step(s) could the church have followed to keep this from occurring?
A. Do not allow the Pastor to also be in charge of finances.
B. Regularly audit bank statements.
C. Regularly audit credit card statements.
D. All of the above.
Scenario #2: The overworked employee
Although the employee really wasn't overworked, her submitted hours suggested she was. This woman was a daycare director and her husband was the bookkeeper. He was responsible for approving the employees’ payroll. A number of embezzlement activities were in progress: purchasing numerous personal items, such as makeup and hairspray, gift cards, doctor visits, clothing. They even made college loan payments. In addition, this woman submitted hours that she had not worked and submitted time for personal leave she had no accrued. Her husband approved her timesheet and she got paid for hours she had not accrued.
Allowing immediate family members to oversee other members:
A. Is highly recommended.
B. Should be strongly discouraged.
C. Is OK, but should be closely monitored.
D. I could go either way on.
Scenario #3: Missionary support
These two scenarios involve missionary support:
A. This case involves three individuals. At least one of them was part of the church. The trio set up a new mission ministry. This was NOT a legitimate mission entity, but was posing as one. One person posed as a missionary under this false ministry. Then the three of them worked to get the church to send donations to support this "missionary." The church responded by sending $12,000 one year and $15,000 the next.
B. The church treasurer took funds that had been designated for missions. He was found out when the missionaries began to call the church, asking why they were no longer being supported.
These scenarios confirm:
A. Never support missionaries or other ministries.
B. Support only ministries/missionaries you know.
C. If you aren't familiar with a ministry/mission, do your homework on them.
D. Both B and C
Scenario #4: The Certificate of Deposit
When this church had some additional cash, they decided to put the funds into a Certificate of Deposit at the local bank. When the CD was set to mature, the secretary advised the pastor that rates were so good she simply renewed the $61,000 certificate. In reality, she had already cashed it in and was using the money for her own personal use. In addition, she was regularly withdrawing money from other accounts and reporting a much higher account balance to the board than what was actually available—$40,000 as opposed to accurate numbers closer to $9,000. Eventually, the secretary confessed to taking about $97,000. After confessing, she revised her will to have the funds go to the church to reimburse the loss; then she attempted suicide by overdose. The attempted suicide failed and the secretary was prosecuted and sentenced to eight years of probation.
This scenario shows:
A. Never purchase Certificates of Deposit from a bank.
B. Never let the secretary be in charge of finances.
C. There are often more issues to deal with than just the financial loss.
D. Never trust a bank.
Scenario #5: Donation to charity
Shortly after a new pastor came to the church, the treasurer (call him George) and the chairman of the trustees (call him Joe) got into a series of disputes with the new pastor. Both of them and their families were very critical of the pastor and encouraged others to leave the church. Occasionally, they disrupted the Sunday morning services with loud conversations during the message. After a short time, George took it upon himself to get the Pastor fired. The pastor contacted the denomination’s district office and asked the people there to get involved. They asked George to cooperate with the pastor, but to no avail. Then, George stopped making housing allowance payments to the pastor.
As chairman of the trustees, Joe got the trustees to change the threshold for congregational approval on spending from $300 to $3,000. This did not seem totally inappropriate, but the allegations suggest that Joe did this solely to allow him to spend more money without having to report it to anyone or get approval. Shortly after that, both George and Joe left the church and another person who was the only signer on the church’s bank account also left with them and their families.
Naturally, the church ran into issues immediately. The pastor attempted to get access to the church’s bank statements, but this proved to be difficult because the only person authorized to access the bank accounts was gone. When George left, he also changed all the passwords to the financial records so the church was unable to access them. They had to hire a computer expert to recover the information. At some point, allegedly after they left the church, George and the others (apparently still having access to the bank accounts) began making donations to charities, all legitimate organizations. It’s alleged that this was done simply to deplete the church’s cash reserves.
Based on this information, ministries should:
A. Have more than one person authorized to access bank statements.
B. Revoke authorization to access bank accounts from anyone who has been removed from a position that has access.
C. Have clear spending procedures in place.
D. All of the above.
Webinar: Church Fraud: Keeping Thieves and Embezzlers Out of Church Finances
Article: Church Fraud Exceeds What Churches Give to Missions
Article: Protect Your Finances with Internal Cash Controls
Checklist: Financial Controls
Checklist: Offerings and Disbursements
Online Resources: www.BrotherhoodMutual.com includes a variety of risk management resources that can help church leaders manage church and ministry operations.
Other Organizations: Evangelical Council for Financial Accountability: This national organization dedicated to helping churches and ministries earn the public’s trust by adhering to financial standards