A background check would have been wise.

The Case

The church Food Bank needed a manager, and took on a volunteer to do the work. She took in donations from supermarkets, other organizations, and from the public. All was going well… until they discovered that she was forging checks. And she had been doing so for 14 months.

She pled guilty to writing 24 bogus checks, made out to cash, totaling just over $4700. She was discovered when she was vague about an audit, and one of the two authorized signers went to the bank to investigate. He found checks with his forged signature – and that of his co-signer, who had been out of the country at the time.

Intriguingly, this manager pleaded guilty and received a suspended sentence in 2014 for bilking a different charity for close to $75,000.

Her defense attorney said she had mental health problems and was “struggling” with her finances. Link1 Link2

Analysis

When a church takes on a new staff member or volunteer, there is a reason to run a background check and a credit check. Here, the background check would have picked up the earlier conviction, and the credit check would have brought the financial pressures to light. Sure, these cost the church money. But the cost of NOT running background checks can be pretty high, too.

It is a bit unusual for a staff member or volunteer to forge checks. Usually they have signing authority and just go ahead and write the check. Or they have access to a signature stamp. Here, the manager had access to the checks (she shouldn’t have), and she made them out to “cash”. Making checks out to “cash” should be prohibited, and the bank should have it in writing and you should test it once in awhile.

And someone should have been looking at the books. When the bank statements were reconciled, they should have seen and questioned those checks. It appears that either the bank statements were not being reconciled, or that this was the manager’s job and nobody was reviewing the bank statements or her work.

How You Can Prevent This At Your Church

Here are eight internal controls which should all be implemented. ANY ONE of these would have prevented this fraud – or caught it 13 months earlier.

  • Run background checks – they catch prior convictions. (Note that 85% or so of church frauds are not reported to the police, so this is admittedly a long shot. But it should be considered.)
  • Run credit checks (check your state’s laws first) – they catch severe financial pressure (one of the three sides of the Fraud Triangle).
  • Lock up the blank checks.
  • Prohibit the making out of any checks to “Cash”.
  • Ensure the bank has your ‘no checks made out to Cash’ policy in writing, and occasionally test the bank to ensure that they are following your policy.
  • Have the bank mail the statements to the pastor or some other senior staff member who does NOT keep the books. This person should perform a ‘smell check’ on the statement to see if anything looks odd.
  • Reconcile your bank statements with the check register, and inspect the check images while you are doing so.
  • Have someone check the work of the person doing the bank statement reconciliation.