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Managing Your Church Blog, October, 2017
How to Recognize and Confront Fraud
Two telltale signs, and the best and worst ways to respond to suspected stealing.
How to Recognize and Confront Fraud

Nathan Salsbery, a partner and executive vice president with the accounting firm CapinCrouse, is an expert at detecting and rooting out fraud in churches. talked with Salsbery about what churches can do to better protect their finances from internal theft.

What makes churches susceptible to fraud?

There are two primary factors. One factor is the high-trust and low-control dynamic, placing too much trust in one individual without healthy checks and balances. The second factor is that often there’s little expertise as far as it relates to finances and accounting, internal controls with checks and balances, and developing good processes to mitigate some of the risk of fraud occurring.

What are telltale signs that fraud is taking place?

One red flag is a sudden lifestyle change, like driving a pretty expensive car when you know, generally speaking, how much a person would be making. Luxurious vacations. A house that seems extravagant. The dollars that are stolen when it relates to fraud are spent somewhere. Often times, they’re spent on lifestyle purchases.

Also, when people get very deep into fraud, they tend to be territorial of the areas they’re in charge of and responsible for, because they fear getting caught. They want to control those areas. So one best practice is to have mandatory vacations for staff members, and you cross-train other staff members to do someone’s job while they’re absent. That, in and of itself, is a deterrent because someone is going to be in the details of what you do week in and week out.

What’s the best way to confront suspected fraud?

It usually begins with a tip from another employee in the church, and there needs to be a safe outlet to communicate that tip. One way to encourage communicating suspected fraud is to develop a whistleblower policy for your church. Then if someone suspects fraud by a pastor, church leader, or ministry leader, that person would know the best person to report that suspicious activity to, like a designated board member or elder. If an employee thinks someone is committing fraud at a lower level of the organization, it would be important for that person to feel like he or she could report it to a CFO or business pastor. That would be the appropriate first step.

Communicate it, notify the appropriate leadership, and do so in a timely manner. From there, depending on the extent, suspected amounts of money, and how long it’s been occurring, seek legal counsel.

The worst thing to do is accuse people of fraud and take disciplinary actions where you’re kind of serving as judge and jury. Such actions can have a negative effect on the person who’s suspected. If you’ve fired the person, it could also lead to a wrongful termination suit. If there are legitimate concerns, talk to the appropriate legal channel or HR person to make sure the way you’re confronting potential fraud is in line with the law. Make sure you aren’t putting the church at risk by jumping to a conclusion.

Final thoughts?

I must stress the importance of getting appropriate legal guidance. If there is a very clear sign of fraud, kind of a smoking gun that fraud has occurred, you might need to place the person on leave. You would definitely want to limit that individual’s access to the accounting system and the assets of the church during an investigation. If there’s access, the suspected fraudster might try to go back and manipulate information and make it more difficult to determine how fraud was occurring.

In the October issue of Church Finance Today, learn more about what to do if fraud is suspected and how to put systems in place that help keep financial theft from happening. Also, see these downloadable resources: Internal Controls for Church Finances, We've Been Embezzled!, and Handling Church Money Safely.