How Fraud Happens in Churches

Preventing financial malfeasance in God’s treasury.

Nathan Salsbery is a partner and executive vice president with the accounting firm CapinCrouse. As the son of a pastor and the son-in-law of a retired FBI agent, it’s perhaps no surprise that he’s become an expert in forensic accounting and rooting out fraud in churches. We asked him to talk about his forensic accounting work and offer insights for identifying and preventing fraud in churches.

What’s the difference between fraud and embezzlement?
Fraud is a very broad term. Embezzlement is just one method of fraud. In broad categories, fraud is committed through asset misappropriation, fraudulent reporting, or corruption. Embezzlement sits within asset misappropriation, so it’s kind of a subclass of fraud.
Is asset misappropriation the most common type of fraud?
Yes, in general terms, asset misappropriation is stealing, and that is the most common type of fraud. It could be stealing the cash of a church, whether through cash going out of the church, such as checks or expense reimbursements, or through cash coming in to the church, such as offerings or registration fees paid by a member for a church event.
What is forensic accounting?
The Association of Certified Fraud Examiners defines forensic accounting as “the use of professional accounting skills in matters involving potential or actual civil or criminal litigation.” The process of forensic accounting works in practice this way: A person calls us to say they suspect someone stole cash from a church or ministry. Then we come in and look at the areas of suspicion and risk and organize our findings in such a way that church leadership can decide on what actions they will take with the person or people under suspicion. Sometimes we work in coordination with the church’s attorney and sometimes we work directly with church leadership.
Often, we help identify where the highest risks are and the likelihood that funds are being stolen. Sometimes, there’s evidence or red flags upfront that show it’s pretty likely, and we’ll be asked to quantify how much we think was taken. Now, based on ethical standards of the Association of Certified Fraud Examiners, we don’t issue any opinion or judgment of guilt or innocence. Forensic accounting is used to gather evidence, which could potentially be used in a court of law. If an allegation ends up in court, a judge or jury would make the determination on whether or not fraud was committed. So, every forensic accounting engagement we perform is done with the assumption that the findings will be used in litigation, whether or not the church pursues legal action.
What are some examples of your forensic work with churches?
Often, small and medium-sized churches without sophisticated accounting processes are a prime environment for committing fraud. These tend to be high-trust environments where leadership trusts a particular person with the finances of the church.
These also tend to be low-control environments without a lot of checks and balances separating various duties. Often in small churches, one person is controlling the financial and accounting process of the ministry. So for anyone tempted to steal money, it becomes a prime environment to commit fraud.
What trends are you seeing when it comes to fraud within churches?
Certainly, an area of high risk is misuse of ministry credit cards—using the credit card for personal expenses rather than legitimate purchases. For example: taking trips and using a church credit card on airline flights with family members, purchasing clothing, or entertainment expenses where there is no ministry purpose. It could be any use of ministry funds for things for which it would be difficult to make a strong business case of having a legitimate purpose.
I’ve also seen inflated mileage reimbursements where it’s really benefiting the people personally at the expense of the ministry.
There’s a fine line when it comes to what constitutes fraud: for personal benefit versus what is negligence or ignorance. Again, that’s where a judge or jury would determine if intent is present—intent versus a lack of knowledge of what is or isn’t appropriate on expenses.
I’ve met with pastors who have spent church funds on areas that someone who has an accounting background wouldn’t consider appropriate. So, what could look like fraud if intent was present might just be ignorance or some degree of negligence. Either way, there is an issue that needs to be addressed.
What about offerings? Do you see any problems there?
There certainly is the risk of offerings being stolen from a church. However, many churches we work with have good controls over collection of the offering—having more than one person count the offering and having a process in place to make sure the amount counted by multiple people is the amount deposited in the bank account.
But we see a greater risk of fraud with money given to the church beyond the offering, such as daycare tuition and camp registration fees. There often are not as many formal processes of counting funds and entering them in an accounting system for non-offering revenues of the church. That’s where the fraud methodology likely would be “skimming.” They’re taking cash or checks, and they’re misappropriating those before they’re entered into the church accounting system. There’s just not as much oversight in that particular area as there is over tithes and offerings.
Is there a profile of the typical fraudster?
Particularly in the church context, the position of a pastor or a business pastor—someone who has access and authority—is where there’s going to be higher risk, just because there’s more opportunity. Men in general tend to commit fraud more than women, but again, from the cases that have been communicated to us, fraud is committed by both genders and by all ages, races, and ethnicities. Fraud happens all across the world.
What worst-case scenarios have you dealt with and what lessons should churches learn from them?
When fraud happens, the worst-case scenario is within the higher levels of leadership: a senior pastor, an executive director, or CEO of a ministry. It is a moral failure, so it has similar effects to other moral failures within a ministry. It breaks down the trust between the organization and its constituents and donors. Particularly, if not handled swiftly and ethically between the board and the church, fraud becomes a true crisis in the ministry because the whole lifeline of a ministry is from its donations and giving base. So when you break that trust, there’s significant financial fallout that threatens the future of the ministry.
Why do people in a church office fail to report fraud?
When fraud happens at the senior levels of leadership, direct reports fear repercussions as far as it relates to their employment.
Smaller and midsize churches sometimes have a small staff in a high trust and relational context, so people hesitate to speak out against those they would otherwise trust. They want to believe the best.
Not having a safe person to talk to, like an independent board member or elder, makes it more likely for someone to just stay quiet on the issue as opposed to speaking out. Whistleblower policies are helpful to counter the intimidation factor in reporting.
Why do church leaders often miss signs of fraud?
They’ve entrusted too much to one individual, so they’re really not even monitoring finances closely to begin with. Or maybe there’s no one in leadership with enough financial acumen to question things, like current and prior expenses, as well as trends on giving and expenses.
Most ministers have only Bible college and seminary training, where usually there’s not specific training on accounting processes and financial control. It’s just not an area of expertise for most pastors. Because of that, they usually delegate those duties to someone else, and it tends to be someone they trust and don’t monitor closely.
How can small churches use controls to reduce the risk of fraud?
Small churches can leverage volunteers in the ministry. For example, volunteers can count the offering. You might have a person who oversees the finances of a church, like a business pastor, but use ushers and volunteers to do the accounting and sign the account forms. Then, depending on if it’s the business pastor or someone else that makes the deposit to the bank account, you’ll have a deposit slip related to that. You also have an elder or board member periodically compare deposit slips to the account forms your volunteers signed.
And if you only have one person in charge of the financial systems of a church, you’ll always need to utilize the help of volunteers.
Another thing churches can do is this: in high-activity areas where cash is turned in or counted, have cameras in place—and there are many relatively cheap ones—that can serve as a deterrent to make sure people know there’s a level of monitoring that occurs.
Another safeguard: send bank statements to a board member or elder with the canceled check images as part of the statement. Most banks will include canceled check images, so you’ll be able to determine if there was any fraudulent check tampering or misuse. A board member or elder should review the credit-card statements from the pastor or business pastor of the church. That’s a pretty quick control. It really doesn’t take much time to send the statements to someone.
The very fact that statements are being sent to someone who would be serving in a supervisory or monitoring role is itself a deterrent—and less likely that a person will be tempted to commit fraud.

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