Houses of worship are havens from fraud, right? Wrong. The author describes how church workers’ erroneous thinking leaves them particularly vulnerable to fraud and what congregations can do to deter and prevent fraudsters’ attacks.

The telephone rings, and a pastor tells me that his church’s building fund of $180,000 has no balance. I ask him if the church offerings weren’t meeting the budget, and he says that he believes that they were. It seems that the previous long-time volunteer treasurer had stepped down, and then a new member of the church decided to fill the spot. The relieved pastor was grateful. However, after several months, the building fund began to dwindle. The new treasurer said that she had to transfer monies from the building fund to the operating fund.

My investigation revealed a simple scheme. The new treasurer was drawing checks from the building fund made payable to an out-of-state limited liability company. The payee on the checks was a shell construction company, and the treasurer was reverting funds via online banking back to another local bank account. Apparently, the new treasurer had a gambling problem. The church didn’t conduct a background check with the treasurer’s prior church, at which he’d committed the same scheme. The prior church had decided not to prosecute because of its embarrassment.

Anti-fraud education and prevention in churches has been one of my top priorities during my 23 years in the ministry. I’ve conducted several fraud examinations ranging from a small $25,000 benevolence fund fraud to a $1.5 million denominational credit union fraud. Many believe that others wouldn’t take advantage of people in houses of worship. Of course, fraud examiners know that all organizations are vulnerable to fraud. Churches, synagogues and mosques are particularly susceptible because trust often replaces basic internal controls. And most houses of worship don’t know how to either prevent fraud or deal with it when they discover losses.

× Church frauds I have known Pastor's new fraud startup A pastor used his church credit card for personal expenses and to withdraw cash. The church also allowed him to have a debit card from a fund that was separate from the account that ecclesiastical authorities supervised. Because this was a new church start-up the denomination was funding the church and the pastor’s salary. The pastor would report low offerings to the ecclesiastical authorities and take the majority of the offerings and deposit them in a secret account. He would then pay some of his personal expenses such as clothes for himself and his wife, his wife’s nail and hair care, meals for himself and his family, and entertainment that wasn’t church related. The ecclesiastical authorities became suspicious when one of the members of the church called to say he was concerned about where the offerings were going because he knew the authorities were supplementing the pastor’s salary. Treasurer's bogus vendors and custodian A volunteer treasurer at church created false invoices for vendors that had similar names to real vendors. She’d pay the invoices and endorse the checks. She set up a bank account in another city as an LLC and would mail the checks to the bank with a hand-written endorsement of the business. The bank never questioned the various endorsements. Also, she set up a fictitious employee as a custodian and began to pay herself small amounts. She would endorse the checks and receive the money in cash. The bank also never questioned that endorsement. Collecting the IRS' portion A volunteer treasurer of a small local church would disburse checks to a payee with a name that was similar to the Internal Revenue Service. She’d deposit the checks for the payroll taxes in a bank account under a fictitious corporation with that same similar name to the IRS. She’d then file the quarterly payroll tax returns showing that payroll taxes had been paid. Of course, the scheme came to light when the IRS told the church that it had filed employee quarterly tax returns but hadn’t made the payments. Treasurer is benevolent to herself A volunteer treasurer had signatory authority over the benevolence fund (containing money for the less fortunate) but didn’t tell the pastor who she was giving money to from the fund. When the pastor requested money to cover someone’s rent payment, church officials realized that the fund was depleted. The volunteer treasurer was using the benevolence funds to pay for personal expenses for her and her family, and rent payments for her family. And a little off the top for the usher A large church supported a new smaller church via an ancillary ministry fund. Church ushers would collect money from the larger congregation and walk them across the street to the smaller church. One of the ushers was skimming some of the cash and stuffing it in his pocket. The larger church didn’t know that the usher already had been convicted of petty theft. From the church to a pawnbroker (and his friends) A building superintendent of a large church had custodial duty over sound and musical equipment and machinery to clean the building. The superintendent stole the equipment and then filed false police reports. The church filed an insurance claim and replaced the equipment. The perpetrator sold the merchandise to a pawnbroker who was a fence for other small pawnbrokers. When the perpetrator tried to pawn some musical equipment at another business, the honest pawnbroker called the police. The description of the building superintendent matched, and he confessed to the crime.

Fraudsters in houses of worship commit various schemes. In the $25,000 small benevolence fund case, a church treasurer used her stolen cash to pay off personal loans and also gave some to her family.

In the denominational credit union case, its manager converted customer accounts through false real estate secured interests. In a very sophisticated scheme, she removed money from customer accounts and recorded them as loans from the credit union to the customers from which she’d converted the cash. The credit union manager would exhaust the funds from the customer accounts into her bank account in another county.

To cover herself with the credit committee of the board of directors, she would go to several surrounding counties and file deeds of trust proving that the loans were sufficiently collateralized by real estate. However, the real estate that she used either was already collateralized by another lending institution or didn’t have a mortgage.

I’ve seen external sources such as vendors, payroll services and insurance agents defraud churches. However, most frauds are committed by trusted internal people: pastors, long-term employees and long-tenured volunteers who act as treasurers and ushers. All have some control over cash.

Fraud traumatizes a congregation. Its board is reluctant to press charges with the district attorney and file an employee dishonesty bond. The embarrassed church doesn’t want media coverage because it feels others will believe it wasn’t diligent in its internal controls and oversight. The congregation and leadership feel vulnerable to its ecclesiastical authority. And, of course, donations can plummet.



