You Ask, We Answer: Protecting Your Church from Financial Fraudshared values // on Tuesday June 13, 2017
Churches are funded primarily by the charitable contributions of members and other donors, but what happens when funds are stolen or embezzled? Does your church have a financial safeguard plan in place? Keeping tabs on your ministry’s funds is instrumental in keeping your doors open to members, and it’s important to understand how to recognize and respond to financial fraud.
This topic was discussed in a recent webinar held by GuideOne Insurance and Church Executive. As you’ll see below, webinar participants asked a lot of thoughtful questions. Eric Spacek, loss control & risk management director at GuideOne Insurance, has the answers to these questions.
Q: When members of our church submit receipts for reimbursement, what is the correct procedure and what is required?
A: While there is more leeway in providing reimbursements to church members versus church employees, it remains a best practice to implement and follow an “accountable reimbursement plan” at your church. Basically, such a plan requires that reimbursements not exceed the expenses incurred, the individual seeking the reimbursement must substantiate the expense with receipts or other documentation, and all monies in excess of those documented must be returned to the church. For details on an accountable reimbursement plan, consult with your church’s CPA or financial advisor.
Q: When members or leadership ask “don't you trust us?”, what’s the appropriate response?
A: This is similar to the same question being asked when a church decides to implement criminal background checks on the volunteers who will be caring for minor children. It is not a matter of trust so much as it is the church implementing appropriate controls to exercise proper stewardship over the monies faithfully donated to the church by members and attendees. Having a system of controls in place and providing transparency in financial reporting also helps to defend against false allegations of financial wrongdoing.
Q: Is it risky to allow for discretionary funds in the budget?
A: Yes, if there are not appropriate controls in place. It is recommended that churches implement a policy on discretionary funds that includes the specific purpose for the fund, requiring documentation of withdrawals or distributions from the fund, specifies the types of distributions allowed, establishes a disbursement voucher process, prohibits personal use of the fund, sets a dollar amount limitations on withdrawals, and provides for auditing of the fund in conjunction with the auditing of other church funds.
Q: What is an example of a Whistleblower policy?
A: See this article from the National Council of Nonprofits which includes a sample whistleblower policy.
Q: What is the best way to handle restricted funds, like a separate bank account or restricted general ledger accounts?
A: See this article on the topic from Dan Busby, President of the Evangelical Council for Financial Accountability (ECFA).
With financial fraud cases increasing, it is more important than ever to take the proper safeguarding measures to protect your church's funds. Protect your church from financial fraud by accessing our “Prevent Financial Fraud at Your Church” webinar resources here.