Confession Time: Dealing with Fraud in Church

In a recent edition of the “International Bulletin of Missionary Research,” Todd M. Johnson, PhD, estimated that in 2013, Christian financial crime would hit about $37 billion globally. By 2025 he predicts that number will increase to $60 billion.

The “2012 Marquet Report On Embezzlement” found that among the 15 industries with the biggest gross losses to embezzlement, religious organizations took the 13th spot. The average loss size came in at $434,842. But that number alone doesn’t reflect the overall variance.

Temptation abounds

Fraud and scandals are found throughout religious institutions, from the small congregation where they pass the collection plate each Sunday, to the mega-church scene with million-dollar bank accounts.

Back in 2008, Friar Raymond Zambezi — who was in charge of the sanctuaries at perhaps the single most famous healing shrine in Christendom, Lourdes — was being investigated for suspicious deposits of nearly $600,000 to his personal bank account. Church officials feared that the case would put a damper on donations.

Other times, fraud in the religious realm can be less high profile and more like the fraud that plagues virtually every work place, such as the case of Rev. Charles Shifflett in Virginia. He repeatedly filed workers compensation claims for back injuries while overstating his income. He ended up facing a fine of $50,000 and up to 310 years in jail.

In many ways, religious groups operate in the same manner as secular businesses. Not all of their income is from donations. They sometimes charge for services provided, they hire contractors, buy from a wide variety of vendors, apply for grants, invest their money, have local area networks (LANs), maintain online bank accounts, and more. And just as we’ve experienced in other sectors of the economy, these activities can be subject to fraud.

Casting the first stone

However, attitudes toward fraud, when detected, seem to have some dimensions that we typically don’t see when fraud in commercial entities is detected. Much fraud in the religious sector goes unreported. IRS reporting requirements for churches aren’t the same as for non-religious organizations, and sometimes internal loyalties decrease the likelihood of reporting.

Alton Sizemore, a forensic accountant who spent 25 years working for the FBI, told Forbes, “Nobody wants to believe that the person they trust, the person they respect, is stealing from them. But that is exactly what I’m seeing in our practice.”

Johnson said that experts believe as much as 95 percent of all fraud within churches goes either unreported or undetected. “Part of it is a reluctance to see the bad side of a compassionate pastor, a hard working secretary, or an altruistic board member of the church.” Johnson said he once heard a church member say, “I know he stole my money, but I still think he’s a wonderful person.”

Controls overcome culture

As we have seen with nonprofit groups, religious institutions often lack the accounting and auditing systems to prevent, detect, and catch fraud. The old phrase of “dipping into the collection plate” is a practice that can easily go undetected.

Religious organizations need to develop and implement internal controls to maintain their integrity. However, sometimes church culture can act against these practices. For example, it’s not difficult to imagine a scenario in which one or more members of a congregation voice their concern and call for better financial safeguards. These people may open themselves up to being criticized for their lack of trust in church leadership. The fractures within a congregation and church leadership can even be more severe when actual whistleblowers come forward.

In 2007 Connecticut priest Michael Jude Fay pleaded guilty to stealing some $1.3 million dollars from his church. His arrest and confession came after Rev. Michael Madden and a bookkeeper at Fay’s parish hired a private investigator and uncovered the financial fraud. It’s reported that Madden first took his suspicions to the Diocese of Bridgeport.

The action of hiring the investigator brought criticism from the diocese, which issued a public statement that denounced the whistleblower priest. Madden eventually left the parish and the priesthood, saying that the strain caused by the situation proved to be too much for him to handle.

Cases like these, along with the various sexual scandals that have received much attention in the media, highlight the need for anonymous whistleblower systems in church settings and other religious institutions. Although “confession” plays a major role in the Christian tradition, for their own protection, and the protection of their congregants, religious organizations need to go further.

Practical steps

Along with a method of safely reporting fraud and other forms of abuse, religious groups should take the same fundamental steps to protect themselves as do commercial and governmental organizations and secular nonprofits. Consider these points:

  • Most churches and religious groups have some system of board governance. It’s important that the board include members with sufficient accounting knowledge and experience to address fraud risks.
  • Churches handle a significant amount of cash donations. One person should not have the authority to collect, account for, and deposit donations.
  • Often the collegial nature of church offices can foster a trust that leads to sharing passwords. Be certain that LANs and bank account passwords are properly safeguarded.
  • Require two signatures for larger checks.
  • Hire an outside auditor. Because churches foster a sense of community, there’s a temptation to hire an accountant that is also a member of the church, perhaps even on the board. Avoid this. Enlist someone who is completely nonpartisan.
  • Many church organizations have very hierarchical authority structures. Those who are in the highest levels of authority must buy into and promote the organization’s ethics program.

When these kinds of measures are in place and enforced, churches and religious institutions can avoid the instances of fraud that cause significant and irreparable damage.

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