State v. Walston, 2000 WL 1526404 (N.C. 2000)
• Key point 7-21. Embezzlement refers to the wrongful conversion of funds that are lawfully in one's possession. Embezzlement is a common occurrence in churches because of weak internal controls.
A North Carolina court affirmed the conviction of a pastor for obtaining church funds by false pretenses. One week after the death of a church's treasurer, the pastor approached the church's new treasurer and asked her whether the premium for the church's insurance had been paid. The new treasurer did not know. The pastor offered to find out and said that he needed a check to do so. He informed the treasurer that if the premium had not been paid, he would use the check to pay it. The treasurer signed a blank check from the church's bank account, wrote "church insurance" on the memo line, and then gave the check to the pastor to be used to pay the insurance premium if necessary. The church's insurance premium had, in fact, been previously paid.
Later the same day the pastor completed the check with an amount of $10,000 made payable to the church. He then opened a checking account at another bank in the name of the church, and deposited the $10,000 check. The pastor maintained a personal account at this bank, and over the next several weeks he made several withdrawals from the church account which he deposited into his own account. The pastor also wrote checks to his contracting business to perform remodeling work at the church that had never been authorized.
When the church treasurer discovered the $10,000 withdrawal from the church's checking account, she notified church members who immediately scheduled a meeting with the pastor. At that meeting, the pastor stated that he opened the second account because he thought the church's primary bank account would be "frozen" as a result of the death of the church's treasurer. Soon after this meeting, the new treasurer received the check book for the second bank account. She started writing checks on this account to pay the church's bills. She did not notice that three checks had already been written on the account. She also never received the "starter" check book from the pastor. Most of the pastor's unauthorized checks were from the starter check book. The pastor later opened another account in the church's name at the same bank, and deposited $2,500 in this account from funds from the other church account.
The treasurer never received bank statements or canceled checks from the church accounts opened by the pastor. Church members held a second meeting with the pastor. At this meeting, the pastor promised to supply the bank records and receipts, but he never did so.
The pastor was later charged with obtaining money by false pretenses. The state alleged that he had transferred $6,900 from the church accounts he established, for his personal benefit. The pastor insisted that he used these funds to purchase a printer, gas heater, and sound system during this time, all of which were for church use. A jury found the pastor guilty as charged, and he was sentenced to jail for a term of ten to twelve months. He appealed his conviction on the ground that the state had failed to prove his guilt.
The appeals court affirmed the pastor's conviction. It defined the crime of false pretenses as a false representation of fact that is intended to deceive, which does in fact deceive, and by which one person obtains or attempts to obtain value from another. The pastor insisted that the state failed to prove that he made a false representation that was intended to deceive. The court disagreed. It acknowledged that an essential element of the crime of obtaining property by false pretenses is "that the act be done knowingly and designedly with intent to cheat or defraud." A person's intent "is seldom provable by direct evidence, and must usually be shown through circumstantial evidence." The court concluded that the evidence in this case clearly demonstrated that the pastor made a false representation with an intent to deprive the church of its resources:
At trial, the state offered the following evidence of circumstances to establish that defendant made a false representation with intent to deceive: the recent death of the church's treasurer, defendant's act in obtaining a check on the church's account for one stated purpose and then using the check for another purpose the very same day, his setting up a new account by using the check to transfer almost all of the church's money to an account which he had sole access, his failure to tell anyone at the church about the new account, his transfer of church funds to his own account to reimburse his own company and others for work on the church which the church had not authorized, and his use of the church's money to purchase items for his own use. Considering the evidence in the light most favorable to the State, we find that the State established that defendant made a false representation with the intent to deceive.
The pastor also challenged his conviction on the ground that he received nothing of value as a result of his false representations. He claimed that he did not obtain anything of value merely by obtaining a blank check and using the check to open a church checking account, and that his subsequent use of the church's account for his own purposes was not value obtained as a result of the alleged false representation. The court disagreed. It agreed that the crime of obtaining property by false pretenses requires proof of a direct relationship "between the alleged false representation and the obtaining of money, property, or something else of value," and that "the gist of the offense is the attempt to obtain something of value from the owner by false pretense." The court concluded that this requirement was met:
The state's evidence tended to show that defendant obtained as a result of his misrepresentation sole access, at least initially, to $10,000 of the church's funds, which, although the church may have ultimately benefited in the form of remodeling done on the church, he spent to benefit his own company and himself. Again, considering the evidence in the light most favorable to the state, we agree that the state proved causation …. [W]e agree with the state that defendant did receive value, the initial sole access to $10,000 of the church's funds, and he did not have authorization from the church to use those funds.
What this means for churches
This case is important for the following reasons:
1. It provides a useful lesson in the importance of maintaining good "internal control" over a church's financial resources, and the problems that can occur when internal controls are neglected. Here are some of the weaknesses in the church's internal controls that led to the pastor's criminal acts: (1) The pastor had sole signature authority over the two church bank accounts he established. If a second church officer's signature had been required on all checks, the pastor could never have committed the criminal acts for which he was convicted. (2) Monthly bank statements were not reviewed by someone having no responsibility for handling cash. In large part, this was due to the pastor's refusal to turn over this information for fear of being "caught." Church leaders should insist upon a prompt review of all bank statements issued on any church account. (3) The church treasurer failed to review the "starter" check book out of which the pastor made most of his unauthorized withdrawals. (4) Church leaders did not question why unauthorized remodeling work was being done at the church by the pastor's contracting company.
2. The case illustrates that church leaders may be prosecuted and sent to jail for mishandling church funds. The fact that the pastor in this case claimed that he did nothing to "benefit himself" was not a defense to criminal liability.
3. Church leaders should view any new church bank accounts with great suspicion. Only the congregation, or the church board, should have the authority to establish new bank accounts. A new and unauthorized bank account often is a sign that church funds are being misappropriated or mishandled.