Fraud in the Church What the Survey Tells Us

Transcription

1 Thursday, July 12, 2012 Fraud in the Church What the Survey Tells Us C9 1:00 PM 2:45 PM D9 (Repeat) 3:45 PM 5:30 PM Location Room 336 Using survey results, this session assesses the depth of churches awareness of fraud and the extent of their readiness to confront it through proactive anti-fraud measures. At a minimum, the following questions will be addressed: Drawing wisdom from the survey responses from their peers, churches will learn key elements in developing a sound fraud prevention program. What are the most popularly implemented anti-fraud measures? What essential anti-fraud measures are commonly ignored? What types of churches face the greatest risk? Verne Hargrave is a Certified Fraud Examiner as well as a CPA. He joined PSK in 1978 and has been a shareholder since He concentrates in the area of not-for-profit organizations, principally churches and Christian ministries. He oversees and conducts numerous church audits and supervises the church accounting services department of PSK. Verne is a member of NACBA, and is a frequent speaker at various church and ministry-related seminars. He earned his BBA in accounting at the University of Texas at Arlington in 1976, and obtained his CPA certificate in May In addition to his public accounting career, Verne served as a bi-vocational pastor at Grace Street Fellowship in Arlington, Texas, from 1993 to Verne is also author of Weeds in the Garden: The Growing Danger of Fraud Taking Root in the Church published by NACBA Press. Verne Hargrave CPA, CFE Contact Information: Verne Hargrave verne@pskcpa.com

2 Fraud in the Church What the Survey Tells Us Verne Hargrave MBA, CPA, CFE PSK LLP

3 Church Governance Our church has compiled written financial, accounting, management and personnel policies in a central document such as an accounting and management policy manual. All respondents 53% NACBA members 50% Key Point: Fraudsters HATE. Our church has adopted a formal conflict of interest policy. All respondents 35% NACBA members 32% Key Point: Individuals are not to benefit from their involvement with a charity. A conflict of interest policy is a strong to fraudsters that the church takes this seriously. Our church conducts formal volunteer orientation or training. All respondents 64% NACBA members 62% Key Point: Formal training helps solidify and define operational. Our church conducts credit checks on volunteers. All respondents 4% NACBA members 3% Key Point: Volunteers in financial difficulty WILL to your church.

4 Segregation of Accounting Duties From the time of collection to the time of the bank deposit, funds are never, even for just a few minutes, in the custody of a single individual or kept in an unsecured location. All respondents 66% NACBA members 69% Key Point: We are talking, not hours! The individual who prepares the checks also mails the checks. All respondents 52% NACBA members 54% The person responsible for general ledger and financial reporting also mails the checks. All respondents 30% NACBA members 34% Key Point: Signing the checks is not the in the bill paying process. Our church does not allow an individual who serves on the count team, is involved in check preparation, or is involved in general ledger and financial statement presentation to participate in the bank reconciliation process. All respondents 58% NACBA members 61% Someone other than the preparer reviews the completed bank reconciliations. All respondents 64% NACBA members 68%

5 Key Point: The bank reconciliation process is the of your church s financial process. Segregation of Accounting Duties Our church has a formal policy describing the characteristics required for participation on the count team, including limiting related individuals and restricting the same individual from participating in more than one component of the process. All respondents 67% NACBA members 68% Church volunteers are required to rotate off their assignments periodically. All respondents 21% NACBA members 24% Key Point: Collusion A secret agreement, especially for fraudulent purposes; conspiracy. 1 Being a relative or long-time friend with a fellow volunteer makes collusion a little bit. We present a list of authorized check signers to the leadership team/elders, etc. for review at least annually. All respondents 58% NACBA members 54% Key Point: can be a useful tool to a thief. 1 Dictionary.com

6 Segregation of Accounting Duties Our church requires volunteers to collect, administer and account for special event receipts using a written report developed to properly account for such events. All respondents 58% NACBA members 55% Key Point: Many churches the reporting of special events and require little or no from their volunteers.

7 Cash Disbursements Our church uses pre-printed, pre-numbered purchase orders or check request forms to initiate purchases. All respondents 18% NACBA members 24% Key Point: A and bill paying process is a must! (Remember the baseline ) Our church has established an approved vendor list. All payments for goods or services are made only to vendors on the list. All respondents 18% NACBA members 21% Key Point: Fraud prevention includes who you are doing business with. Our church has established a Positive Pay program with our bank. All respondents 4% NACBA members 1% Key Point: Fraud prevention is a. Enlist your banker as a key team member.

8 Cash Disbursements Our church issues credit cards (in the church s name) to employees and/or volunteers. All respondents 58% NACBA members 43% Our church has implemented a written credit card policy to control credit card purchases. All respondents 70% NACBA members 74% Key Point: The efficiency of credit cards must be with the their use entails.

9 Payroll Each quarter we reconcile the total payroll amounts on the quarterly payroll reports (941s) to the total payroll amounts recorded in the payroll journal and general ledger. All respondents 75% NACBA members 76% Key Point: Fraudsters lie to hide in the tall weeds. ( ) Someone not involved in the payroll preparation process distributes paychecks or direct deposit stubs. All respondents 29% NACBA members 24% We review direct deposit account information for duplicate accounts. All respondents 27% NACBA members 34% Key Point: To avoid you must get to know your workers.

10 Information Technology Our church has a formal information technology security plan. All respondents 49% NACBA members 52% Our church financial secretary or accountant/bookkeeper has access to all modules of the church s software system. All respondents 80% NACBA members 80% Key Point: The presence of computers has reduced the risk of fraud. Computers have in fact, - the risk.

11 Payments to Individuals Before paying an individual as an independent contractor, our church applies IRS compliant tests to determine if the payee qualifies as an independent contractor. All respondents 59% NACBA members 60% Key Point: Embezzlers tend to shy away from their theft to the Government! Our church has written a policy to direct benevolence payment activity. All respondents 61% NACBA members 62% Key Point: Benevolence funds are one of the few accounts where payments to are not suspicious. (Fraudsters are very aware of this fact.)

12 Fraud Prevention Programs Our church has established a formal program for managing fraud risk. All respondents 38% NACBA members 42% Our church has developed an anti-fraud team consisting of members from the leadership team, ministerial staff, congregation and professionals such as CPAs, CFEs, or attorneys. All respondents 9% NACBA members 11% Our fraud risk program includes a routine assessment (at least annually) of the vulnerability of the church to fraudulent activity. All respondents 25% NACBA members 29% Our church has created ownership of fraud risk management by assigning the responsibility of managing fraud risks to a member of senior ministerial staff or the leadership team. All respondents 20% NACBA members 25% Key Point: Fraud prevention does not happen by. Our church has established appropriate channels for reporting and resolving sensitive issues like fraud and illegal acts. (Examples include establishing an anonymous fraud hotline, posting notices, etc.) All respondents 39% NACBA members 36%

13 Key Point: Statistics make it clear that the most common method of fraud detection is!