Many churches have no safeguards for the money given for God's work. This leaves our churches open to fraud or embezzlement that may go undetected for months or years. The following practices can help protect your church family from such financial risks.
Review of financial records by a knowledgeable independent party
The church, or other para-church entity, should have a finance committee or knowledgeable deacon to oversee the organization's finances. This individual or group should review financial statements for unusual trends, balances, or relationships, and also review any supporting details to provide assurance that the financial records support the statements.
Vacations for financial and accounting staff
Require all staff members responsible for financial and accounting matters to take periodic vacations. Train other staff members or volunteers to serve as backups to the accounting and finance staff. Fraudsters often refrain from taking vacation time to minimize opportunities for others to detect their improprieties. Backup personnel have been known to find such things as theft of outgoing or church members' checks.
Independent review of bank statements
Someone other than the primary accountant or bookkeeper should prepare bank reconciliations and review bank statements for large, old, or unusual reconciling items and suspicious transactions. Reviewing cleared checks or check images could detect checks fraudulently made payable to the accountant, or an entity or alias controlled by the accountant.
Security of signed checks
Secure the church's signed checks to prevent access by the preparer or recordkeeper. Signed checks not adequately secured could be altered, allowing the individual to cash them or apply the funds to a personal account, such as a utility bill.
Segregation of duties
Keep certain financial and accounting duties separate among staff members, and don't assign incompatible responsibilities to related parties. Ensure that different individuals perform record-keeping, custody, and reconciliation duties. For instance, best practice dictates that one person would post disbursement entries, another person would have access to the check stock and signature plates or sign checks, and a third person would reconcile the bank accounts to the general ledger.
Money left unattended or in only one person's control
Two or more persons should always count and confirm church offerings, and such monies should always be in a staff member's direct possession or stored in a secure location. These practices reduce the risk of allegations that can neither be supported nor refuted. They also eliminate the opportunity for theft. The fraud triangle consists of opportunity, need or motive, and a dishonest person. As Christians, we should seek to eliminate the opportunity for theft so that we do not put church members or employees in a tempting situation that may be more than they can bear.
Detailed budget review and reconciliation
Detailed budget inquiries serve as both a deterrent and detective control. Thieves look for opportunities where they are not likely be questioned, call attention to themselves, or call attention to unusual activities.
Checks and money received logged and posted by separate persons
Generally, the person who first touches the mail should open it and log incoming checks. The second person will then prepare the deposit. The remaining process depends on how many people are available in the office. If there is only one other person, the person who prepares the deposit can post the checks received, and then balance the totals posted with the person who logged the checks. If there are two additional persons available, a third person should balance the log and the summary of posted incoming checks.
External financial statement audits are conducted in accordance with generally accepted auditing standards. Those standards require that the audit be planned and performed to obtain reasonable assurance whether financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Finally, an external audit expresses an opinion that financial statements present fairly, in all material respects, the financial position of the company and the results of its operations and the changes in its financial position for the year then ended in accordance with generally accepted accounting principles.
Document all financial policies and procedures
Putting all policies and procedures related to financial transactions and reporting in writing is part of accountability. Policies and procedures are only effective if monitored and enforced.