Here is the second article in our series on “Risk in the church and organisations”.
In this article we discuss
Red Flags of Risk in the church for Fraud and Embezzlement
Red Flags are indicators that something may be wrong.
They can be character traits, situations, or external situations. As part of overall financial risk minimisation strategies, Red Flags are things to watch for and alert to the underlings causes. It’s about supporting your increased awareness with a few best practices.
Acts of fraud re almost always concealed. The key to detection is knowing what to look for.
These items in themselves don’t necessarily mean that there is fraud, stealing or embezzlement. Usually there is more than one Red Flag operating, that may indicate that fraud is occurring in a ministry. Here are some exa males of Red Flags:
- Single Person Control – one person has sole responsibility and control over many financial aspects, eg budgets, spending. Financial-based tasks should never be completed by a single individual. Too much dependency on one person for financial management and processes
- Person involved with financial aspects of the church:
- Reluctant or refusing to take holidays
- Working long hours, much paid or unpaid overtime
- Refusing promotions
- Taking offence at suggestions of work being checked
- Counting offerings and/or collecting donations
- Reluctant to upgrade accounting systems
- Reluctant to allowing other approved people, officers, view access to the accounting system.
- The charismatic do-gooder. Don’t assume that the person handling the money is trustworthy just because they enthusiastically do the record keeping and rarely require assistance.
- A person who has over-interest in financial affairs or the value of church items
- Unexpected shortages of cash or other assets, under and overs can hide/disguise each other
- Disgruntled employee or volunteer
- Complaints from employees, members, or donors about financial issues
- Disorganised records, apparent carelessness in filing
- Inaccurate financial reporting. This may include exporting of financial reports into spreadsheets and further manipulation.
- Duplicate payments to vendors, or ad hoc change to vendor details
- Untimely or non-existent financial statements (audited or un-audited)
- Altered or missing documents including supplier invoices not exactly matching the financial transactions.
- Unusual transactions
- Employees who appear to be living beyond their means
- Difficult personal circumstances of people involved with church finances
- Husband and wife control over financial affairs or offering counting.
- Conflict of interest, eg un-monitored suppliers who are friends or family members of those with church financial responsibilities.
- Lack of general corporate governance in the area of financial management & controls. This provides an environment that is easy to exploit. This is usually characterised by:
- a lack of interest in the development, maintenance and adherence to financial policies
- Inconsistent meetings covering financial management
- Lack of agreed method of
- Lack of people with adequate financial skills within the management of the church
In future articles we will share some action churches can take to minimise the risk of financial fraud in their church.
We include some clear “how to identify Red Flags” and “How to deal with Red Flag situations”, with some examples to help you in your church or organisation
Resources used in the development of this article.
We recommend that you read them!!