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 ruled that a pastor who also served as an officer for a Parent Teachers Association (PTA) was guilty of embezzlement for using corporate funds for personal purposes.
An investigation of improper use of funds
A pastor of a local church (the “defendant”) served as president of an elementary school’s PTA from 2011 to 2013. As the defendant's term concluded, allegations arose of improper use of PTA funds by the defendant. As a result, a CPA and the local county sheriff instituted an investigation into the receipts and expenditures of the PTA.
The investigation unearthed spending and disbursements by the defendant and other PTA officers that apparently exceeded standards authorized by the organization’s bylaws. The bylaws authorize the PTA to make expenditures "in furtherance of the general mission of the PTA." According to the bylaws, financial records were to be audited monthly and annually.
The CPA reviewed the PTA's account and found several problematic transactions, such as
- transactions with no receipts,
- unaccounted for gift cards and fundraising certificates,
- checks for meals,
- checks reimbursing defendant personally for gas and travel expenses, and
- checks issued without the purpose indicated.
The pastor’s arrest and indictment
The defendant was arrested and charged with embezzlement. Following his arrest, he was administered his Miranda rights and consented to an interview with a detective. The defendant was informed that he would be held accountable, as the PTA president, for any improper expenditures made by any PTA board member, even if he did not personally request the expenditure. The detective also informed the defendant that if he was unable to account for the gift cards at issue, "that [would be] considered embezzlement."
The defendant was subsequently indicted for two counts of embezzlement, one count for each year he was the PTA president. The state offered the following transactions as evidence tending to show defendant's guilt:
- golf shirts embroidered with the name of the church of which the defendant was the pastor, but billed to and paid for by the PTA;
- PTA reimbursements to the defendant for gas used to attend a family funeral;
- a digital camera purchased by the defendant with PTA funds;
- numerous unaccounted for gift cards bought with PTA funds;
- payments to PTA board members and their families;
- reimbursements for food at PTA board meetings; and
- renewal of the church's Sam's Club Warehouse membership with PTA funds.
The defendant did not offer any evidence in his defense and moved to dismiss the charges for insufficient evidence. The trial court convicted the defendant on both counts and sentenced him to two consecutive terms of 16–29 months, both of which were suspended for 36 months of supervised probation. The defendant appealed, claiming that the state failed to produce substantial evidence of fraudulent intent, or produce substantial evidence that defendant was the perpetrator of any crime.
State appeals court affirms conviction
A state appeals court affirmed the defendant’s conviction. It noted that
a person commits embezzlement when he: (1) with intent to defraud; (2) converts to his own use; (3) money or property belonging to another; in a situation where (4) the money or property initially came within his possession or control lawfully. . . . Embezzlement does not occur through a mere act of converting or appropriating property to one's own use. Instead, the State must not only demonstrate appropriation, but it also must demonstrate that such act was done with a fraudulent purpose or corrupt intent.
The courts have found substantial evidence of fraudulent intent when a defendant “exceeded his authority by taking more coupons than was allowed from his employer without any authorization,” or through discrepancies in financial books, or when a corporate treasurer took funds to her own home every night.
The appeals court explained:
Defendant plausibly exceeded his authority as president of the PTA by using funds for purposes the jury could have found to be outside the scope of the PTA Bylaws [such as] church shirts, personal travel reimbursements, and procuring the $35 renewal of the church's Sam's Club Warehouse membership. In doing so, the “defendant not only exceeded his authority, but often did so without PTA approval through a vote. The evidence also tended to show defendant failed to hold PTA funds in reserve as required by the PTA Bylaws. Substantial evidence showed defendant had the power to control PTA spending, a power he employed to misapply or appropriate PTA funds for personal use.
What this means for churches
I have addressed several cases in which a pastor’s personal use of church funds led to severe consequences, including loss of a church’s tax-exempt status as a result of prohibited “inurement,” and exposure of a pastor and church board to crippling penalties for excess benefit transactions under section 4958 of the tax code. And while this case doesn’t deal specifically with embezzlement of church funds, it still demonstrates another significant consequence: pastors can face criminal liability for embezzlement. State Gillbert, 2019 WL 1040957 (N.C. App. 2019).