No church wants to think that anyone on staff would even consider embezzling funds. A good understanding of the how easy it is to embezzle funds, will help churches proper safeguarding policies in place. Such standard operating procedures will protect funds for their intended purpose. Here are five examples of embezzlement and how to avoid loss:
- Digital signatures – A digital signature can be used to sign checks or take out lines of credit from a bank. Such signatures, as well as signature stamps, must be kept in a secure location. Create a process for access, with accountability for using the signatures.
- Bank statement review – If the person who writes the checks also reconciles the account, then fraudulent checks can be written without exposing the wrongdoer. Make it a policy for bank statements to be reviewed by a church official who has no responsibilities related to check writing or cash transactions.
- Check image review – Fraud may not be detected if statements are reconciled by check number and amount only. Periodically review the images of checks, instead of just reconciling by check number.
- Two signatures – Establishing a rule for two signatures on checks over a designated amount is another deterrent for fraud.
- Credit card charges (reimbursements and statement review) – Make sure that items purchased for the church are actually used by the church. Require written authorization for purchases and an original receipt that documents the purchase and price paid. Review and reconcile credit card statements.
If you suspect embezzlement in your church, you will need to file a Form 3949-A with the IRS. This form will trigger an IRS investigation based on the information you provide, even if you don’t have all of the details. In a church or non-profit organization, embezzlement is not just fraud against the organization; it is fraud against the donors who contribute to your mission.