Thou Shalt Not Steal: How Religious Groups Can Fall Victim to Fraud

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According to the Pew Research Center, 84% of people around the world affiliate themselves with a religious organization. With such a large majority of people connected to religion, churches, synagogues, mosques and other religious centers are seen as pillars of the community. They are often involved in charitable works such as distributing food and supplies for the needy or providing moral counsel for congregants. In the U.S., religious institutions are classified as tax-exempt and viewed as public charities; they are technically nonprofits for tax purposes.

However, even groups that purport to do good works and are supposedly run by people of unblemished character can fall victim to fraud. In his session “Fleecing the Flock: Reducing the Risk of Fraud at Religious and Community Organizations,” at the 31st Annual ACFE Global Fraud Conference, Rollie Dimos, CFE, told attendees that unfortunately organizations like churches can provide fertile ground for fraudsters. Dimos, the director of internal audit for the Assemblies of God National Office said, “[Fraud happens] even in these organizations with high morals, high ethics, high integrity.”

He explained that in a religious or nonprofit environment, there is often a high expectation of trust. With that trust comes the reluctance to suspect that anyone involved with the organization could commit fraud. “Some of the characteristics that make them great also makes them at risk,” he said. One of the biggest issues that trust creates is a false belief that controls aren’t needed.

He described one case that displayed how misplaced trust can lead to fraud. The church in question operated with approximately $650,000 in revenue a year. They employed a bookkeeper for eight years who was a long-time congregant, but as the church was rapidly growing, they decided to hire a business administrator as well. The church tried to have controls in place — the board of directors received monthly financial statements, all checks required two signatures from the board and an outside CPA firm reviewed financial statements annually. However, one practice that didn’t seem significant at the time was that all payroll for church staff was direct deposited. The new business administrator butted heads with the bookkeeper until eventually the bookkeeper was fired.

Despite the church bringing in a healthy revenue, “they were always living week to week,” said Dimos. He was brought in to help reconcile what was going on, and it was discovered that the bookkeeper had been falsely inflating her hours for payroll (by up to 740 hours) and even issued herself 113 extra checks between pay periods during her eight-year tenure. “They said, ‘We never looked at payroll, we just assumed it was always right,’” he said. “They were surprised, and they were certainly hurt and depressed … because a close, dear friend that they trusted had taken advantage of them.”

“It’s so common for one person to be in charge of all finances or all bookkeeping,” he said. “If we don’t have good controls … our donations will be lost to fraud.” He also cited the fact that many smaller religious organizations operate on shoe-string budgets as a reason for a lack of separation of duties. They may not have the staff power to keep a robust system of controls in place and it becomes easy to override controls due to necessity. “It’s just so easy to make exceptions,” he said.

Since religious organizations often use their funds to help those in need, fraud perpetrated against them not only is theft from the organization but deprives those in need of necessities and support. Dimos explained that most church groups put a large emphasis on “missions giving,” which is money that is used to help communities. He cited a Center for the Study of Global Christianity statistic that estimates that missions giving worldwide amounts to approximately $47 billion, but ecclesiastical fraud costs $53 billion. “We’re losing more to fraud than we’re spending in mission,” he said.

He said that ultimately to prevent fraud in religious organizations, fraud examiners need to focus on the opportunity portion of The Fraud Triangle. “We can’t control what people justify in their heart, why they steal from an organization,” he said. He also said we can’t control outside financial pressure on people, but we can control the opportunity for them to steal. “We don’t want you to be tempted to steal.”

He recommended that church leaders focus on setting a strong, ethical tone at the top. “If you want the employees to have great integrity, you need to model it yourself … don’t make exceptions and don’t let the leaders always be the ones to have exceptions.” He also thinks business management and anti-fraud training should become more commonplace for religious leaders. “Pastors become the CEO [of the church] and they need more business skills and more practice.”