Fraud in the Church—Part 1
By Cynthia Gordon-Floyd, Contributing Writer
What is fraud as it relates to the church? Fraud encompasses a broad range of corrupt activities but is generally defined as a misappropriation of funds due to the mishandling of assets, fraudulent reporting, and corrupt activity. One company, Brotherhood Mutual Insurance, reports remarkable numbers relating to embezzlement in churches. More than $70 billion are stolen from churches worldwide each year and 80% of fraud is never officially reported.
Fraud is a crime. Yet, many of our churches have faced this issue in silence. They have chosen to “extend grace” to the perpetrator or demand restitution. Rarely are these fraudulent acts reported to the proper authorities. In my practice, it has even been admitted to me far too many times that there are known individuals “skimming” off the top within the church.
Many churches fail to report fraud if it occurs in senior leadership because of the emotional toll it can take on the church. It is perceived as a moral failure and trust is broken between the leadership and members. It takes a significant long-term toll on the congregation if it is not addressed quickly and effectively.
The loss of trust erodes the foundation of the ministry. Congregants may begin to withhold their gifts or even consider leaving the church. Misappropriation is a fraudulent act and should not be covered up in our church environments.
Small and medium-sized churches are the prime targets for fraud. Small churches often have one or only a few volunteers willing to provide financial management support for the church. With only a few volunteers, responsibilities are often not divided sufficiently, providing ripe opportunities for misappropriation or stealing.
It is highly recommended to avoid three high-risk conditions. First, one person having too much control and access to church funds. Second, only one person counting and depositing the money received. Third, only one person having access and authority to sign checks.
Those who have the highest level of authority and the most access to church funds pose the greatest risk because they have more opportunities. There are many cases of fraud in churches by both genders and all ages, races, and ethnicities.
Fraud frequently goes undetected because we give too much control or access to individuals and use trust as an insufficient substitute for internal control procedures. Most pastors and congregants are not trained to recognize financial irregularities; therefore, basic internal control procedures must be implemented.
Cynthia Gordon-Floyd is a certified public accountant and founder of Willing Steward Ministries, LLC. Willing Steward Ministries (http://www.willingsteward.com) is a financial consulting and accounting firm for churches and other faith-based non-profits and specializes in Bible-focused financial practices, pastoral compensation issues, IRS compliance, and other financial needs specific to churches. Cynthia is a graduate of Lake Forest College and received her Master of Business Administration in Accounting from DePaul University. She is a steward and the financial secretary at the First AME Church of Manassas in Manassas, Virginia.
