Keep the following six steps in mind to help prevent fraud from occurring at your church:
- Conduct independent, extensive reviews of bank account reconciliations. This is the best way to prevent fraudulent activity.
- Use a formal vendor application process to clear conflicts of interest and avoid disreputable businesses for ongoing business activity. For one-time deals (such as short-term missions trips), set up processes with good record-keeping and documentation requirements.
- Maintain regular communication with vendors. This helps verify whether abnormal activity is legitimate.
- Perform periodic payroll audits.
- Conduct occasional confirmations of charitable contributions. This can be sensitive, since it involves approaching donors to verify a gift and its amount. If you need a reason that helps manage such sensitivities, use your auditing firm, since it will reinforce the ongoing efforts to track and monitor activity.
- Make exhaustive reviews of budget reports. Look at the budget and do the following:
• A budget-to-actual analysis
• On a test basis, a comparison of general ledger detail to budget line items
• An independent review of journal entries
• A periodic review of cash disbursement activity
The bottom line: Make sure expenses in each account are legitimate.
This article is excerpted from " High Stakes with High-Tech " by Verne Hargrave. For more on this topic, see these downloadable resources: Preventing High-Tech Fraud and Internal Controls for Church Finances.