Several years ago, a church we know was the victim of a simple fraud scheme that resulted in the theft of approximately $75,000 by an employee. This church had strong internal controls in place and received an annual audit that tested both their controls and financial transactions. Their finance committee met regularly to review budgeted and actual financial results. And the church prided itself on transparently sharing its annual audit report with the congregation. But when the theft was discovered, none of these measures seemed to help. Overnight, the pastor and leaders were thrust into the midst of a full-blown crisis, with accusations, anger, and blame from all sides. The pastor, who was just a few days into a well-deserved month’s long retreat, was forced to cancel his plans, turn the car around, and return to deal with the crisis.
Does this story sound familiar to you? If not, statistics indicate that it is just a matter of time. In 2000, according to The International Bulletin of Mission Research, $19 billion was lost to fraud throughout the world. That number has been growing by over 5% per year. Researchers estimate that $59 billion will be misappropriated this year. What makes this number even more tragic is that fraud outstrips the income of global foreign mission by $7 billion.
After experiencing fraud, the church in our story took the following important steps to respond to the incident and to rebuild trust:
- They contacted their insurer to check what coverage they might have for fraud.
- They quickly and clearly communicated with the congregation about the fraud and resulting loss. Beginning with the governing body, they shared all pertinent information. No attempt was made to keep secrets.
- They conducted a special forensic audit to determine if the employee’s fraud extended beyond what they had discovered and to identify other vulnerabilities in their systems.
- Finally, the pastor and lay leadership began the difficult tasks of dealing with the feelings of shame, anger and betrayal. Furthermore, questions regarding forgiveness, reconciliation and reparation can often be divisive. There can be no quick fixes to such difficult events.
If your church has been blessed in that you have not yet been a victim of fraud, our advice is twofold:
- First, strengthen your defense against fraud by reevaluating your existing internal controls. Your auditor may help you determine areas of weakness in your current system and suggest ways to remediate them. Think of this type of work as fireproofing your financial system. If you can prevent a crisis from ever occurring by instituting a few additional controls, that is always preferable to fighting the fire that results when fraud takes place.
- Second, plan your response to fraud NOW, before it occurs. Assemble a team of church leaders to prepare now by determining how the church will respond if a fraud occurs in the future. As the church in our example discovered, figuring out how to respond in the midst of a crisis can lead to a serious backlash against church leadership. When a church employee or a volunteer perpetrates a fraud, the deception reflects poorly on church leaders who hired and supervise the individual. Trust in the church’s ability to correctly handle the gifts of donors can be damaged. As with crisis management plans that exist in business settings, the church can and should create a plan of how to respond to this risk.
Churches can either be hobbled or made stronger by fraud. The difference in outcomes is usually the result of strong planning and faithful responding.
