What could possibly go wrong?

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What could possibly go wrong?

May 14, 2019 Blog Cases 0

The Case

In 2003, he was bankrupt, had $150 in the bank, $50 in his pocket, and $98,000 in debts. That same year, the church hired him at $125 a month to be their bookkeeper. They gave him unrestricted access to the books – the right thing to do for a bookkeeper. But they also gave him unrestricted access to the bank account, their ATM, and the checks. He also prepared the reports for the finance committee.
 
What could go wrong?
 
He allegedly then proceeded to write himself checks and hit the ATM. He also allegedly transferred money from the church to his own account.
 
For nearly 14 years.
 
The church, in a community of 811, lost over $481,000.
 
The treasurer made no response to a lawsuit brought by the church. The judge issued a judgement against him for $2.4 million. The church’s attorney expressed doubted his ability to repay what he called a “loan”. A criminal investigation is ongoing. Link

Analysis

Fraud TriangleFraud in churches always involves three elements: Financial Need, Opportunity, and Rationalization.

  • This fellow had the financial need: he had only $200 to his name.
  • Opportunity: he had access to both the assets and the books. This is a classic recipe for embezzlement.
  • Rationalization: he was being paid $125 a month. Bookkeepers ought to get more than that. So one of his rationalizations was likely, “They aren’t paying me enough – I’ll help them do what is right.” He also might have figured that the church was in the business of giving to the poor, and he qualified. He claimed, too, that he considered the money to be a loan from the church that he was going to pay back.
The church likely did not do a background and credit check. Such checks would have shown that he was in financial straights. And then they gave him unlimited access to every cent the church had. To make it worse, they had nobody watching him or checking his work. For 14 years.

How To Prevent This From Happening At Your Church

  • Before appointing or hiring someone at your church, run a background check;
  • If the new person will have any financial responsibilities, run a credit check. This can be ticklish in some states: discuss this with your lawyer;
  • Give your bookkeeper access to your books, of course. But DO NOT give him or her access to the assets. They should NEVER be a check-signer, use a signature stamp, or have a church debit or credit card;
  • Have the bank and credit card company mail the statements to the pastor. He should look them over before handing them to the bookkeeper.
  • Swap bookkeepers with a sister church to look over the books. This is lots cheaper than a CPA audit, and is likely good enough to spot weaknesses. (CPA audits are more for investors making comparisons between opportunities.)