“Cooking the books” wasn’t part of the student menu plan, but the school’s cook made sure it was part of his plan nearly every time he shopped for food. As the one authorized to buy food for school meals, the cook often bought large quantities with church funds. From all appearances, everything looked okay, but he intentionally purchased more food than the school needed. Later, he returned unused items for a cash refund and then pocketed the money.
Increasing at an annual rate of nearly six percent, researchers expect church financial fraud to reach the $60 billion mark by 2025. That’s still not the whole picture. About 80 percent of all cases of church fraud go unreported and therefore are not included in statistics.
Sound incredible? Perhaps, but it’s an actual incident of church theft.
“Church thieves are creative,” says Tom Lichtenberger, assistant vice president-property claims at Brotherhood Mutual. He should know. On average, 30 or more claims involving fraud, embezzlement, or staff dishonesty show up on Lichtenberger’s desk each year. Some cases seem so obvious that he says it’s a wonder any thief would think they could go undiscovered.
“Often, church people can’t bring themselves to believe that their pastor, a church trustee, long-time member, or the school cook could possibly steal from the church,” Lichtenberger says. “Normally, it’s one of the most trusted people in the church who’s pilfering from the collection plate, or diverting funds from the church budget or investment accounts to feed their spending habits or pay personal debts.”
Several years ago, a church day-care director managed to steal $100,000 before church leaders caught up with her. Not only did she steal cash, but she also told parents that since she was the director, the day-care’s bank account was in her name so they should make their checks payable to her. To cover the theft, she carried out an administrative “sleight of hand.” Parents paid tuition in three-week increments, so the director re-enrolled some students every few weeks. She then gave local social service agencies an accurate count of students because they required an actual head count, but gave the church board a roster that did not include students whose tuition she had stolen.
Research on church fraud shows that $100,000, while significant by most people’s standards, is a very small part of the estimated total amount of fraud committed against the Church each year. According to the current Status of Global Mission report from the Center for the Study of Global Christianity, Christian organizations worldwide are expected to experience more than $59 billion in financial fraud by mid-2017. Compare that to the $53 billion churches are expected to give to worldwide mission work during the same time frame.
Church crime continues to grow—estimated at more than $110 million each day. At that rate, worldwide church financial fraud may reach the $100 billion mark by 2025. That’s still not the whole picture. About 80 percent of all cases of church fraud go unreported and therefore are not included in statistics. Only the big fraud cases, some involving complex schemes perpetrated by well-known Christian individuals and organizations, make the news.
Most Christians do not steal from their church. Mainly, they consider church to be a haven from the ills of the world, a place of peace and kindness, and a shelter of care for one another. While true, these same characteristics provide a welcome to those who choose to take advantage of an environment of trust, one that encourages participation, often with little supervision.
“The defining element of church thievery is that it’s intentional,” says Matthew Hirschy, vice president and treasurer at Brotherhood Mutual. “Even if a thief’s aims are modest, the behavior is especially deceptive since these people are trusted to handle church assets properly.” Most church thieves, he says, gain access to the resources they steal through their position.
Would-be thieves can find “easy pickings” in most churches. Start with the offering plate and move on to the church checking account, ministry credit cards, and the church’s investment accounts. As someone intent on stealing gains the trust of church leaders, these resources become more accessible and easier to rob without getting caught—at least not right away.
“Fraud often happens when church and ministry leaders do not consider distinctions between their core ministry and how church business is handled," Hirschy says. “Ministry leaders should ask themselves: ‘Does our organization encourage financially responsible behavior?’”
A recent survey conducted by a church fraud prevention organization found that nearly 60 percent of the churches surveyed had no way to report suspected financial crimes in their churches.
Who’s watching your finances, property, and equipment?
“The business component of the church supports the ministries of the church,” Hirschy says. “Written policies and procedures should be in place and followed diligently. Ministry leaders should remain perceptive about all financial matters and especially alert to the dangers of online transactions—they are a way of life, these days, and shouldn’t be ignored.”
Crimes like embezzlement often produce a ripple effect of hurt, suspicion, and blame throughout a church or ministry. Such consequences are not isolated solely to the embezzler or the thief. Often, leaders lose credibility, as well. Sometimes, people end up leaving the church because of the misgivings that follow church crimes. Recently, at a church in which the pastor had embezzled a large amount of money, the response from the congregation was very conflicting and nearly caused a church split.
The risk for church financial crime only increases when controls are not in place, they’re weak, or not practiced at all. “In reality, most churches need to do very little to prevent financial crimes,” Hirschy says. “Church finances are relatively easy to control. Just watch for red flags and put the right checks and balances in place.”
Red Flag #1: One person is responsible for it all
"Make more than one person responsible for everything,” Hirschy says. “The person opening the mail shouldn’t be the same person who makes the bank deposit. The individual making payments from an account should be checked by another person who balances the account. Always look for ways to reduce the temptation for those who handle the church’s money.”
Red Flag #2: Counting money alone
Use the rule of twos. At least two unrelated people should collect and count the offering. They also shouldn’t work together during the week or be in a personal financial crisis of any sort.
Red Flag #3: Inadequate supervision
“Always reconcile bank statements and monitor financials monthly,” Hirschy says. “Well-informed church leaders can spot irregularities more easily.” Churches and ministries also should schedule audits by an outside organization regularly.
What happens when warnings like these go unnoticed or aren’t taken seriously? Lichtenberger points to a case that crossed his desk. “If church leaders had been paying better attention,” he says, “the pastor may never have gained sole control of church finances and misappropriated thousands of dollars from the church.”
As the story goes, 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, the pastor 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 $20,000 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.
There are a number of best practices that any church can follow to help prevent such incidents:
GENERAL FRAUD PREVENTION TACTICS
SPECIAL PRACTICES FOR TITHES AND OFFERINGS
If you suspect that a financial crime has taken place at your church, call your insurance agent right away. “Your Brotherhood Mutual agent can put you in touch with people who can help conduct an investigation as you begin to collect evidence,” Hirschy says. “Also consider enlisting the help of a Certified Public Accountant. Not only will a CPA be able to provide an unbiased perspective, an accountant also can help establish financial controls.” In addition, you may want the help of a certified fraud examiner. Such an investigator functions much like a CPA, but has specialized skills related to financial investigations.
“Don’t just forgive and forget,” Hirschy says. “Investigate first. A crime has been committed. Trust broken. Showing mercy doesn’t necessarily mean forgiving a debt or ignoring a crime.” As stewards of a church’s resources, church leaders have a fiduciary responsibility, so it may be necessary to prosecute the offender to recoup losses from a theft, especially losses resulting from long-term embezzlement. Most insurance policies require that the policyholder be willing to prosecute as a requirement for insurance coverage.
Church crimes often carry with them a number of considerations, many of which may not be obvious as the investigation initially unfolds. If you are confronted with embezzlement or another financial crime at your church, consider these potential issues as you discuss what action to take:
Church members support their churches financially with the assumption that what they give will be handled responsibly to advance the ministry goals of the church. Leaders should insist on the same high standards of financial responsibility as those we attribute to the best businesses and not-for-profit organizations.
“Those of us charged with church governance and financial oversight should make every effort to ensure that controls are in place and firmly enforced,” Hirschy says. “Embezzlers and other church thieves succeed only when poor financial practices allow them to exploit the character of trust and care that Christians consider the core of their church’s success.”
Webinar: Church Fraud: Keeping Thieves and Embezzlers Out of Church Finances. In this Brotherhood Mutual webinar, Matthew Hirschy, vice president and treasurer at Brotherhood Mutual, and Tom Lichtenberger, assistant vice president-property claims, discuss what church leaders can do to help prevent fraud in their churches.
Fraud Prevention Quiz: What Would You Do to Prevent Fraud at Your Church?
Checklist: Financial Controls
Checklist: Offerings and Disbursements
Online Resources: 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 is dedicated to helping churches and ministries earn the public’s trust by adhering to financial standards.
Updated: December 30, 2016
Thank you for your interest in Brotherhood Mutual. We appreciate the opportunity to provide your church or other ministry with an insurance quote and will reply to your request as soon as possible.
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