What is the Cost of Fraud

According to a recent study by the Association of Certified Fraud Examiners, a typical organization loses 5% of revenue to fraud each year. For a church, that would equate to losing almost three weeks of tithes and offerings.

Another study by the Center for the Study of Global Christianity shows that financial fraud in religious organizations outpaces donations for worldwide missions.

These are startling statistics.

In all of our churches, we have leaders, staff members, and volunteers who are caring, compassionate, and fully dedicated to their ministry. In many cases, those involved in ministry are far more dedicated to their positions than most employees in the public sector.

However our churches are at risk. Because we expect the best from our staff, we tend to let down our guard and rely on trust, rather than accountability. In addition, many churches have a small or part-time bookkeeping staff which can contribute to a poor segregation of duties. Further, for the sake of expediency, church leaders sometimes bypass or exempt themselves from established policies or controls meant to provide accountability.

While we’ve seen various TV ministries go through some very public trials because they failed to keep their finances accountable and transparent, financial abuse can happen to any church, of any size.

Cost of Fraud in the Average Church

Consider the following chart that identifies the average income of various AG USA churches in 2013, and the potential losses due to fraud:

A 5% loss of revenue would certainly be difficult for most churches but could be catastrophic for some.

Oftentimes, fraud schemes are difficult to detect and usually involve people who you’d least suspect. However, strong internal controls and other accountability measures can help detect fraud sooner. Unfortunately, our churches may be at greater risk because smaller organizations tend to have fewer internal controls in place to prevent and reduce the risk of fraud in their organizations.

Think about your ministry. Have you adequately segregated duties to ensure accountability? For example:

• Is the person who records the deposit in the financial system also involved in making the deposit?
• Can the person who creates the checks also sign the checks?
• Can the person who reconciles the bank account also make entries in the accounting system?

If you answered yes to any of these questions, consider adding additional “eyes” to the process to increase accountability and reduce the risk of fraud.

Want more help?

If you would like an in-depth assessment of your processes, take a look at Integrity at Stake, Appendix B - available at myhealthychurch.com.