Tips for Preventing and Catching Misuse of Church Funds for Pastors/Audit Committees From a Church That Has Been There
FOLLOW THE MANDATES OF The Book of Discipline —
THEY HAVE BEEN PUT THERE FOR A REASON

 

When you think of embezzlement, do you think of a high-powered thief stealing millions from a multi-million dollar corporation? On the contrary, much embezzlement is done simply, and on a small scale by trusted employees, and churches can be vulnerable because of the high level of trust of all persons. It often happens because of inadequate internal controls in a church organization’s accounting system.

Below you will find tips for preventing and catching the misuse of funds. If you maintain the suggested controls, it is a good indicator that everything possible is being done to prevent possible employee or volunteer fraud. An internal control system must, of course, be designed to fit the needs and size of a particular church organization. But these tips can serve as a starting point for determining whether you need an internal control review. An internal control review may help set up and maintain stronger controls. Please also consider reviewing the “Local Church Audit Guide” available on the GCFA web site. Click here to go to “Local Church Audit Guide.”

Note: There are no foolproof guarantees against embezzlement and fraud! Internal controls can only help prevent them. Remember the Book of Discipline requirement of fidelity insurance or bonding.

Many internal control procedures are strictly observed when they are first implemented; then, because of job turnover, for the sake of convenience or because employees and volunteers are trusted, they are no longer enforced. Thus, a periodic checkup for internal controls is a good idea.

GENERAL TIPS:

1) Run a total for an account at random (for instance, altar flowers). Does the treasurer's figure come close to the amount you think it should be? Most churches have a set weekly fee: simply multiply it by 52.

2) Read the treasurer's reports to your administrative council and to the charge conference. Does one statement's ending balance equal the next beginning balance Are there accounts (heat, etc.) that seem unreasonably high? If nothing else, you might bring expenses under control. A “no secrets” and “full disclosure” culture will also foster trust and cooperation with members.

3) Ask your auditor for suggestions to improve your accounting procedures and internal controls and then take their suggestions to heart. 2

4) If your treasurer is not an accountant or bookkeeper, provide training and consultation.

5) Know the requirements of The Book of Discipline! There are provisions in place

designed to protect the local church from having these problems (annual audit, bonding, regular and detailed reports from the treasurer to the Committee on Finance and Church Council).

6) Questions deserve answers. When questions are raised to the pastor (or chair of the church council) that something is wrong, follow up! It may be difficult to imply that something is wrong, but it is worse to have contributions made to God through the church misused. Everyone may feel better if the treasurer is totally cleared and an explanation is given.

7) Make sure that there is adequate bonding on church officials who handle money. (See Book of Discipline ¶ 262.4b)

8) Rotate your treasurers (See Book of Discipline ¶ 249.7). Embezzlers will strike you as the most dedicated of people. They cannot afford to take time off or be replaced, because they will be found out.

9) All employees should take annual vacations and their jobs reassigned to others in their absence. Funds should not wait to be deposited until the usual depositor returns from an absence.

10) Don't get paranoid. Most treasurers are good, honest people. But embezzling is a sickness that doesn't go away or get better. In fact, the activity and amount generally grow to the point where the embezzlement becomes obvious and the person is caught. Embezzlers were good, honest people at one time, and are able to make excuses for themselves in their own minds. The United Methodist system does work when you use it. We have budgets, audits, and rotations for reasons. Don't let your local church down by ignoring the safeguards. For additional information on local church audits, see “Local Church Audit Guide” from GCFA Financial Services Department, click here to go to the “Local Church Audit Guide” OFFICE SECURITY:

11) Minimize the use of petty cash. Establish procedures for the permissible uses of petty cash and the maximum account that may be removed at one time. Larger purchases should be handled with a voucher system. Petty cash payments should be backed up by vouchers that have proper approval.

12) Vendor invoices should be approved by the proper party before payment and marked

paid after payment, with a notation for the date of payment and check number.

13) Though distasteful to many, routine background criminal and/or financial checks can be 3 very helpful for anyone who will be handling money or accounts. The laws and procedures differ from state to state. Written authorization and compliance with state and federal law are required.

14) You don't have to wait until the end of the year for an audit or to have your treasurer complete the charge conference report. If you do choose to have the treasurer fill out this report, do not simply file the report in last year's charge conference file! Look it over and compare with the previous year’s. Between December 31 and January 1, one church lost as much as $15,000 on paper (the treasurer had already spent it, and this covered the trail). The treasurer simply began the new report with a different balance from the end of the last report. This way, there was $15,000 that did not have to be accounted for in the

new year. The committee on finance is to provide annual audits of records of financial officers of the local church and report to the charge conference (Book of Discipline ¶ 262.4 c).

15) Sudden changes in apportionment payouts may be a sign of trouble. Can you make it one year and not the next without really knowing why? The same can be true of general expenses — if you don't know how or why you sometimes make or miss your budget, take a look at your finances and find out. It may or may not be the treasurer, but you need to find out what forces are driving your church.

16) If you find that groups or committees are setting up their own treasuries, you have a problem. If they do it because the "church" cannot afford to pay its bills, why is it that all of these separate groups can? These separate groups can "enable" the embezzler because they confuse the financial situation. They also can prolong the embezzlement because they put off the eventual financial crisis.

CHECKS & BALANCES:

17) Mails should be opened by someone other than the treasurer (or his/her assistant).

18) Be sure you are seeing the original checkbook, checks, and records. Do not take your work for granted.

19) Bank statements should be reviewed/reconciled by someone other than the treasurer (or his/her assistant).

20) A regular list of checks received should be prepared by someone other than the

treasurer (or his/her assistant). The list should be reconciled to the cash-receipts journal.

	Arrange with your bank for deposit on Sunday
	Do not remove cash to a home; many insurance policies will not cover the

loss of funds under these circumstances

	Secure cash in a fireproof safe if it cannot be deposited immediately
	Counting teams should be rotated
	Money should be counted by at least two people (not family members) in a

secure area of the church

The offering total should be documented in a consistent manner 4

21) A duplicate deposit slip should be made out by the bank and retained.

22) Pre-numbered checks should be used for all payments.

23) Checks should not be signed until made out (not pre-signed). The check signer should be given supporting documents such as invoices at the time she/he is given the check to sign. If possible, consider requiring two signatures on all checks and withdrawals.

24) Canceled checks or equivalent bank documentation should be stored at the church. Yes, storage is a problem, but requesting bank copies of checks is extremely expensive and time consuming. The audit committee should review checks/documentation to be certain that the stubs match the checks/documentation. Get at least one bank statement. Does it agree with the treasurer's books?

25) Sign the checkbook itself with the date and balance at the time of the audit. Next year, begin at this point.

26) Make sure your finance secretary and treasurer are two separate people. Funds can quietly disappear when the same person deposits the money and writes the checks.

27) Instruct your bank to notify the pastor or the church office of any overdrafts. Many times, bank statements go only to the treasurer, who can then manage to cover misdeeds.

28) Put the canceled checks in numerical order or have the treasurer tape them back into the checkbook. Make sure all the checks are accounted for, even the voids. It is important to mark the check and the stub “void” and tear the signature area. If other than checks are provided as documentation from your bank, retain and verify with voided checks. These tasks should be done by someone other than the treasurer.

29) The committee on finance should designate two persons (preferably not related and notthe treasurer) to count the offering, giving a record of funds to both the financial secretary and treasurer (Book of Discipline ¶ 262.4 a).