Reduce the risk of fraud by creating a team that values solid internal controls!
By Chris Lutes, an editorial advisor at Church Law & Tax Report.
“I personally know of a church where one person took care of the offerings, wrote and signed the checks, and ended up embezzling a substantial amount of money,” says Warkentin. With no one watching, the so-called “borrowing” got way out of hand.
“To reduce the chance of wrongdoing on the part of any one person,” she stresses, “it’s important for any church to have several people handle the offerings.”
A Google search of “church embezzling” yields nearly 5,000 hits. “And those are only the cases that are made public,” says CPA Vonna Laue, a managing partner and west region director with Capin Crouse.
“When you have so many duties consolidated with one person, there is always the risk of fraud,” explains Laue, also an editorial advisor for Church Finance Today. “I always go back to the Scripture: ‘In the multitude of counselors there is safety,’ and in the church treasurer position that is true, too. When you have a team that you can rely on, it takes the responsibility and divides it up to the point that the pressure isn’t all on one person.”
Working as a team, with solid internal control in place, encourages “good decisions and can verify that the reporting is accurate,” Laue says.
To make teamwork effective, you must have sound internal control, says CPA Mike Batts, managing partner of Batts Morrison Wales & Lee and an editorial advisor for Church Finance Today.
Batts points out that effective internal control starts with three key principles.
The first principle is segregation of duties. “For example, the people who actually handle money must be separate from the people who perform the accounting and reporting for that money,” Batts says. “For this purpose, handling money includes processing live incoming currency and checks and having signatory authority over bank and investment accounts.”
The second principle is dual control. “As a matter of integrity for both the church and the individuals involved, live funds (currency and checks) must be processed by at least two unrelated people working together,” says Batts. “And if funds are stored in a safe or vault, they must be stored in a manner that does not permit one person to be able to access them alone.”
The third principle is oversight and monitoring. “The group responsible for overseeing the church’s financial operations should be separate from the church’s accounting team and should regularly and carefully review reports from the church’s accounting team,” Batts explains. “Unexpected variances or unusual items should be investigated.
“Additionally, the oversight group should perform certain procedures to verify the accuracy of key information in the reports. As an example, the oversight group should compare the cash and investment balances included in the accounting team’s financial reports to independent supporting documentation (such as bank/investment statements).”
While the specifics of who does what vary from church to church, governance or oversight for finances falls to a board of trustees, a stewardship committee, or whichever group is the church’s key financial decision maker. The treasurer, on the other hand, is generally responsible for such tasks as making sure the money is counted and properly recorded, overseeing the donor management system, making sure receipts are issued to donors, reconciling bank statements (including all digital giving accounts), maintaining and filing tax forms, making sure the bills are paid on time, and creating regular reports for the governing board or committee.
The size of the treasurer’s team would vary depending on the size of the church and the way the duties are divided. Regarding counters, it’s good to have a team of at least eight that rotate. And, of course, counters must always work in pairs. For the sake of clarity, it is essential to document duties expected of each member.
As you seek out volunteers to help with the various tasks, you’re obviously looking for individuals who are trustworthy and demonstrate a high level of personal integrity. Other traits to look for include:
- Love for the church. “First and foremost, they should be people who fully support and endorse the vision of the church,” says Batts.
- Commitment to financial stewardship. “You are entrusted with the finances of God’s ministry,” says Laue. “You need to take that seriously. For instance, people are getting tax deductions for the donations they make to your church, so you need to make sure donations are handled properly.”
- Value confidentiality. “Confidentiality is so important,” says Dan Busby, president of the Evangelical Council for Financial Accountability and an editorial advisor for Church Finance Today. “If people show evidence of wanting to tell everybody everything that they see, they’re not the kind of people you want handling financial information.”
- No serious financial issues. “Someone who is about to go bankrupt and who is trying to figure out where they can find their next dollar is not a good person to have handling money,” says Busby. “We talk about background screening for childcare workers; there should be background screening for those who handle God’s resources.” Busby says a general background check could reveal, for instance, “whether someone has run afoul of the law relating to financial matters.”
- Basic finance skills. Specifically, the skills must match the duties required. Busby says that people on a financial team “don’t have to be CPAs or they don’t have to be vice presidents of finance.” They do need to have a penchant for details, says Laue.Sensitive and tactful. “I remember serving as a treasurer and someone’s check bounced,” Laue says. “It could be really awkward to go and say, ‘I got your check back.’ This must be handled delicately, and not everyone is suited for that.”
- Punctual. Members on a financial team must value timeliness. “It isn’t unusual to see churches that are behind in reconciling their accounts,” Busby says. “That’s an open door for fraud.”
A properly functioning finance team with solid internal control is essential for safeguarding the church’s finances. It’s also essential for a church’s witness before a watching world.
“This is important work,” says Busby. “This work is for people who are passionate about protecting the reputation of Jesus Christ.”
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