You’ve Been Embezzled

Here’s what to do next.

Churches are prime targets for embezzlement. This is partly because churches are some of the most trusting organizations, a quality often abused by paid staff and volunteers.

Embezzlement not only robs a church of money; it also damages its reputation, calling the ministry’s integrity into question by the public. A church’s own congregation might even disagree on the response to embezzlement—grace versus punishment. This is why one of the biggest challenges of embezzlement in a church setting is determining how to respond when theft is discovered. Here are six steps that may help you navigate the disturbing discovery that your church has been embezzled:

1. Identify the amount of the loss. The church’s first priority is to deal with the embezzled funds and to understand the details of the loss. Ask questions like: Was only one person involved? What’s the time frame for fraud—did it occur long ago, or is it still going on? Is the embezzlement limited to a petty cash fund? Do we have a way to determine how much has been embezzled?

Once you know the details of the loss you are in a better position to decide whether you need outside help or if church staff can handle the situation. If the loss is limited to a few hundred dollars from petty cash, the church staff might easily determine the amount of the loss. If the ministry does not have staff with the knowledge and experience to assess the loss, it may be appropriate to engage a Certified Public Accountant (or an in-country accountant if the embezzlement occurred internationally) to perform a specific audit of the loss. This differs from a full audit. The independent accountant should document the amount of loss and how it occurred. The ministry board has a fiduciary responsibility for all funds, and part of this is to document losses.

2. Insurance coverage. Determine if the organization has any insurance to cover the loss. If so, the question of legal action may be in the hands of the insurance carrier.

3. Restoration of funds. If there is no insurance to cover the loss, determine whether or not the church can recoup any or all of the loss, and decide how to accomplish the recovery. Individuals who embezzle money usually have little, if any, of the embezzled money still in their possession (although they may have some assets that were purchased with the embezzled money). In other words, they tend to spend it as they go. However, under the threat of legal action, most embezzlers will agree to enter into a repayment agreement over several years, and sometimes will sell certain assets to repay the amount owed.

4. Public relations. Determine if the ministry will make a public statement concerning the embezzlement. Most ministries will prepare a carefully worded public statement but will not release the statement unless the matter gets into the media. If it is necessary for the ministry to publicly comment on the matter, the use of a public statement will prevent various versions from being issued by board members or others representing the ministry.

5. Reporting responsibilities. Any portion of misappropriated funds not repaid to the church must be reported as taxable compensation to the individual embezzling the funds under U.S. law (laws vary in other countries). Under the intermediate sanction regulations, embezzlement constitutes an excess benefit transaction subject to penalties and repayment under the law. If such amounts have not been properly reported as compensation, they are considered excess benefits, regardless of whether the total compensation package was reasonable or not.

Because of the intermediate sanction rules, churches should seek knowledgeable legal or tax counsel in respect to the executive director’s proper handling and reporting of unaccounted-for funds, considering the application of the intermediate sanctions rules for excess benefit transactions. Failure to report properly subjects the organization, its board, and the individual, to significant tax penalty and repayment requirements that exceed the stipulated amount unaccounted for. This constitutes a contingent liability.

6. Review policies and procedures. Take what you learned from the embezzlement, and use that knowledge to determine any inadequacies in existing policies and procedures. In order to safeguard from fraud happening again, internal and external controls likely need to be increased in some way. The Essential Guide to Church Finances from Christianity Today says, “The principle of separating duties to establish internal financial control is violated in the majority of churches.”

If the church treasurer was writing checks to himself or herself, what is the best corrective action? A church might require two signatures for each check instead of one. However, checks are primarily processed electronically and few banks check for two signatures, meaning requiring a second signature may have little impact on internal controls. A more effective approach: have all banking transactions reviewed by someone independent from the church financial operation.

Whatever your specific embezzlement issue, the challenge will be to respond with appropriate corrective action. “Appropriate” is the key word here. A balanced approach is needed to avoid an over-kill on the implementation of new policies and procedures versus the other extreme, simply putting a bandage on the problem and not really correcting it.

While many churches hope embezzlement never visits their church, the odds are it will. May God grant you the courage to properly handle the issues in a loving but firm way if it occurs at your church. No matter your situation, promote and model an atmosphere of accountability and transparency to minimize the opportunities of fraud.

To learn more about how to prevent fraud, see the downloadable resource Internal Controls for Church Finances on

This content is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. "From a Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations." Due to the nature of the U.S. legal system, laws and regulations constantly change. The editors encourage readers to carefully search the site for all content related to the topic of interest and consult qualified local counsel to verify the status of specific statutes, laws, regulations, and precedential court holdings.

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