Persons who embezzle church funds face a number of consequences. Some of them may come as unpleasant surprises. Here are four of them.
Embezzling church funds is a felony in most states, and conviction can lead to a term in a state penitentiary. The definition of embezzlement varies slightly from state to state, but in general it refers to the wrongful conversion of property that is lawfully in your possession. The idea is that someone has legal control or custody of property or funds, and then decides to convert the property or funds to his or her own personal use.
Key point. It does not matter that the embezzler intended to pay back the embezzled funds. This intent in no way justifies or excuses the crime. The crime is complete when the funds are converted to one's own use—whether or not there was an intent to pay them back.
Key point. Sometimes an embezzler, when caught, will agree to pay back embezzled funds. This does not alter the fact that the crime of embezzlement has occurred. Of course, it may be less likely that a prosecutor will prosecute the case under these circumstances. And even if the embezzler is prosecuted, this evidence may lessen the punishment. But the courts have consistently ruled that an actual return of embezzled property does not purge the offense of its criminal nature or absolve the embezzler from punishment for his or her wrongdoing. Also, note that church officials seldom know if all embezzled funds are being returned. They are relying almost entirely on the word of the thief.
In many cases the embezzler's biggest concern is not the possibility of being prosecuted for the crime of embezzlement. Rather, it is the possibility of being prosecuted by the IRS for tax evasion. Embezzlers never report their illegally obtained "income" on their tax returns. Nor do they suspect that failure to do so may subject them to criminal tax evasion charges. In fact, in some cases it is actually more likely that the IRS will prosecute the embezzler for tax evasion than the local prosecutor will prosecute for the crime of embezzlement.
Example. A church accountant embezzled $212,000 in church funds. His scheme was to divert to his own use several designated offerings, and to inflate the cost of equipment that he paid for with his own funds and that the church later reimbursed at the inflated amounts. The accountant not only was found guilty of embezzlement, but he was also convicted of tax evasion because he had failed to report any of the embezzled money as taxable income. He was sentenced to a 2-year prison term, followed by 2 years of probation.
Recovery of property purchased with embezzled funds
Here's a real shocker—persons who receive property purchased by the embezzler with embezzled funds may be required to return the property to the church!
Example. A church bookkeeper embezzled several thousand dollars by issuing checks to a fictitious company. He opened an account in the name of a fictitious company, issued church checks to the company for services that were never performed, and then deposited the checks in the fictitious company's account. He later withdrew the funds and purchased two automobiles which he gave to a friend. A court ruled that the friend had to give the cars back to the church, since they had been purchased with embezzled church funds. The point here, as noted by the court, is that one who acquires property with embezzled church funds may be required to transfer the property to the church.
Insurance company lawsuits
As if the three consequences summarized above are not enough, embezzlers face an additional consequence—they may be sued by an insurance company that pays a claim based on the embezzlement. Many churches purchase insurance to cover financial losses due to theft or embezzlement. Insurance companies that pay out claims based on such losses are free to sue the persons responsible.
Example. A court ruled that an insurance company that paid out $26,000 to a charity because of an act of embezzlement could sue the embezzler for the full amount that it paid. Such cases illustrate an important point—a church employee or volunteer who embezzles church funds may be sued by the church insurance company if it pays out a claim based on the embezzlement.
Confidentiality and privileged communications
Sometimes ministers learn of embezzlement through a confession by the embezzler in the course of confidential counseling. This presents the minister with a dilemma—either protect the confidentiality of the confession and refuse to disclose it, or ignore confidentiality and disclose the confession. This dilemma is compounded by the fact that some ministers have been sued for disclosing confidential information without the consent of the other person. Embezzlers may claim that they confessed their crime to their minister in confidence and in the course of spiritual counseling, with no thought that the minister would disclose the information to others.
Tip. Ministers who disclose confidential information without permission risk being sued for breaching their duty of confidentiality. When an employee or volunteer approaches a minister and confesses to embezzling church funds, there normally will be an expectation that the minister will keep that information in confidence. There is no sign above the minister's desk that says, "warning, confessions of criminal activity will be promptly shared with the board or with the civil authorities." Ministers who violate this expectation need to understand that they face potential legal liability for doing so—unless they have the employee's permission, in writing.
Ministers who receive a confidential confession of embezzlement from a church employee or volunteer should not disclose this information to others, including the church board, without the person's written permission. If the embezzler does not consent to the disclosure of the confession, and refuses to meet with the board, the minister should not disclose the information to any other person. Disclosure under these circumstances could result in a lawsuit being brought against the minister and church.
Does this mean that the minister should drop the matter? Not necessarily. The minister is free to gather independent evidence that embezzlement occurred, so long as this is done without disclosing the confession. For example, the minister could persuade the church board to hire a CPA to conduct an audit of the church's financial records. Such a procedure may reveal that embezzlement has occurred. The minister also should attempt to persuade the embezzler to confess to the board.
Key point. Closely related to the concept of confidentiality is the clergy-penitent privilege. Ministers cannot be compelled to disclose in court the contents of confidential communications shared with them in the course of spiritual counseling.
Example. Late one night, a church treasurer arranged a meeting with her priest after informing him that she "had done something almost as bad as murder." The treasurer, after requesting that their conversation be kept confidential, informed the priest that she had embezzled $30,000 in church funds. The priest, with the permission of the treasurer, sought the assistance of the church board. The board decided that the embezzlement had to be reported to the local police. The treasurer was later prosecuted for embezzling church funds, and she was convicted and sentenced to 4 months in jail despite the fact that she fully repaid the church prior to her trial. She appealed her conviction on the ground that it had been based on her confidential statements to the priest which, in her opinion, were "penitential communications" that were privileged against disclosure in court. The appeals court concluded that the statements made by the church treasurer to the priest were not privileged since they involved a "problem-solving entreaty" by the treasurer rather than "a request to make a true confession seeking forgiveness or absolution—the very essence of the spiritual relationship privileged under the statute." That is, the treasurer sought out the priest not for spiritual counseling, but to disclose her embezzlement and to seek his counsel on how to correct the problem. The court also emphasized that the treasurer had "released" the priest from his assurance of confidentiality by consenting to his disclosure of the facts of the case to the church board members.
Informing the congregation
Church leaders often refuse to disclose to the congregation any information about an incident of embezzlement for fear of being sued for defamation. This concern is understandable. However, serious problems can occur when the pastor or church board dismisses a long-term employee or volunteer for embezzlement and nothing is disclosed to the membership. Church leaders under these circumstances often are accused of acting arbitrarily, and there is a demand for an explanation. Refusal to respond to such demands may place the church leadership in an even worse light.
There is a possible answer to this dilemma. Many states recognize the concept of "qualified privilege." This means that statements made to others concerning a matter of common interest cannot be defamatory unless made with malice. Statements are made with malice if they are made with a knowledge that they are false, or with a reckless disregard as to their truth or falsity. In the church context, this privilege protects statements made by members to other members concerning matters of common interest. Such communications cannot be defamatory unless malice is proven. Church leaders who decide to disclose why an embezzler was dismissed can reduce the legal risk to the church and themselves by following a few basic precautions:
- Only share information with active voting members of the church—at a membership meeting or by letter. The qualified privilege does not apply if the communication is made to non-members.
- Adopt procedures that will confirm that no non-member received the information.
- Limit your remarks to factual information and do not express opinions.
- Prepare in advance a written statement that is communicated with members, and that is approved in advance by an attorney.
Key point. In some cases, it is helpful to obtain a signed confession from an individual who has been found guilty or who has confessed. If the individual consents to the communication of the confession to church members, then you can quote from the confession in a letter that is sent to members of the congregation, or in a membership meeting. Be sure that this consent is in writing.
Key point. One court ruled that a church could be sued for defamation for sharing suspicions regarding a church treasurer's embezzlement with members in a congregational meeting. The court concluded that the treasurer should have been investigated and dismissed by the board, without informing the congregation. While no other court has reached a similar conclusion, this case suggests that church leaders should disclose cases of embezzlement to the church membership only if (1) absolutely necessary (for example, to reduce congregational unrest), and (2) an attorney is involved in making this decision.
Avoiding false accusations
In some cases it is not certain that embezzlement has occurred, or that a particular individual is guilty. A church must be careful in how it proceeds in these cases to avoid possible liability for defamation or emotional distress.
Example. A church convened a special business meeting at which the church treasurer was accused of embezzling church funds. Following this meeting the treasurer was shunned by church members who viewed her as guilty. This case is tragic, since the treasurer had been a long and devoted member of the church. Her life was ruined by the allegation, and she had to leave the church. It was later proven that she was completely innocent. She later filed a lawsuit, accusing the pastor and members of the church board of defamation. A court agreed with her, and awarded her a substantial verdict. The court pointed out that the accusation of embezzlement was based on flimsy evidence and could have easily been refuted with any reasonable investigation. The court concluded that church leaders are liable for defamation if they charge a church worker with embezzlement without first conducting a good faith investigation. The court also pointed out that the charges should not have been disclosed to the congregation, but rather should have been discussed among the church board and a decision made at that level on whether or not to dismiss the treasurer.
This case provides church leaders with very helpful guidance in handling suspicions of embezzlement. Do not rush to judgment. Conduct a deliberate and competent investigation, and let the church board resolve the issue without involving or informing the congregation, if possible. In some cases, congregational outrage may occur following the dismissal of an embezzler by the pastor or church board, especially if nothing is communicated to the congregation about the basis for the action. In these cases the board may decide that the membership must be informed. If so, refer to the above discussion on "informing the congregation."