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 federal district court in South Dakota sentenced a priest to nearly eight years in prison. The court also ordered the priest to pay nearly $260,000 in restitution to three churches and $46,000 in back taxes to the Internal Revenue Service (IRS), as a result of his embezzlement.
Background
A Catholic priest in South Dakota devised a scheme to steal cash collected from parishioners by secretly entering the areas in three parish churches where weekly donations were stored. The priest entered the church buildings late in the evening, removing and replacing special, tamper-proof bank bags, and making multiple same-day deposits totaling tens of thousands of dollars of stolen cash donations in a personal account.
Between 2012 and 2018, he stole nearly $260,000. The priest filed false tax returns for tax years 2013 through 2017 and used the stolen money to purchase for himself over a dozen gold-plated chalices, numerous bronze statues, a $10,000 diamond ring, a grand piano, expensive Mont Blanc fountain pens, and other items.
Caught on video
Leaders at one of the churches suspected something was not right with their finances and installed a hidden video camera where weekly collections were stored. In April of 2018, surveillance footage caught the priest “red-handed” stealing money from a locked money bag, according to the court. The church contacted federal authorities, who began a review of the finances of the three churches dating back seven and a half years.
Once the priest was made aware of the investigation, he drained his bank account of $40,000 and bought a one-way plane ticket to Poland. From that point forward, the three churches’ cash collections increased, returning to pre-investigation levels, according to investigators.
The priest was arrested by federal agents at Seattle-Tacoma International Airport in May of 2019, just before his flight was to depart.
The priest was charged with 50 counts of wire fraud, nine counts of money laundering, one count of interstate transportation of stolen money, and five counts of making and subscribing a false tax return. A jury found him guilty on all counts in March of 2020, and he was sentenced by a federal judge in November of 2020 to nearly eight years in prison.
In addition, he was ordered to pay nearly $260,000 in restitution to be split equally between the three churches, plus an additional $46,000 in restitution to the IRS.
What this means for churches
This case is relevant to church leaders for the following seven reasons:
- Many church leaders consider embezzlement to be a problem that “couldn’t happen here.” Yet, it is this very attitude that contributes to poor or nonexistent internal controls over cash handling and payment of expenses that makes embezzlement a real threat.
- How was the priest able to embezzle church funds? In most cases by entering churches late at night and removing bags containing church offerings. Again, if the most basic of internal controls had been implemented, the priest could not have engaged in his numerous acts of embezzlement.
- Church leaders may not be discharging their fiduciary duties when they fail to implement basic internal controls over cash handling and the payment of expenses. Such a failure can result in a host of negative consequences, including criminal liability to the embezzler.
- The legal consequences of embezzlement can be severe. In this case, the priest was convicted of a felony with a prison term of nearly eight years.
- The financial consequences are severe for a congregation and also for the perpetrator in the event he or she is caught and ordered to pay restitution. Additionally, congregations face the challenges of lost trust among their ranks when crimes like these have been committed against them by persons in positions of trust.
- The tax consequences of embezzlement for the perpetrator are often overlooked—and a church faces potential IRS penalties if it does not report stolen funds as taxable income for the perpetrator to the IRS. Here, the IRS was appropriately contacted, and the perpetrator was forced by the court to pay $46,000 in back taxes.
- Consult with legal counsel about the application of state law to the use of video technology. Note: (1) Some states limit or prohibit the use of hidden video cameras in the workplace; (2) the use of hidden cameras may constitute an invasion of privacy under state law; (3) videos depicting a volunteer or employee embezzling church funds may be inadmissible in a criminal prosecution. The law often lags behind technological innovation. As a result, it is important for church leaders to be aware of legal developments in their state and at the federal level that directly or potentially affect the use of surveillance technology.
United States v. Garbacz, 2020 WL 6808850 (D.S.D. 2020).
