We’re supposed to look at bank statements?

The Case
 
Bank StatementThe church had a bookkeeper who kept track of the church finances. She was in charge of preparing checks, and of reconciling the bank statements each month.
 
But nobody checked her work.
 
Had they been paying attention, they would have noticed a few things. There were a large number of forged checks on the trust account. And this happened over eight years. During this time, she brought the trust fund balance from nearly $200,000 down to $178.
 
They also might have noticed a large number of forged checks made out to her from the operating account. But these had at least an attempt at disguise. The memo lines read “social security offset”, “additional payroll”, and “cleaning supplies.”
 
She was just sentenced to 27 months in prison, and has to pay back over $400,000. Link

 

 

Analysis

 
Churches operate on trust, but they ought to have an extra pair of eyes on the lookout, too. Here, nobody was looking over the bookkeeper’s shoulder. Bank statements and check registers should match. They should also match with the purchase order requests, receipt vouchers, payroll records, and utility bills. They should NOT show unauthorized checks going out. And checks made out to the bookkeeper are a red flag – especially when there are lots of ’em.
 
This case illustrates the need for involving someone OTHER than the bookkeeper. The pastor should get a first look at the bank statement each month before she gets it. And afterwards, someone should review the reconciliation, too. It also demonstrates why one ought to lock up the checkbook, and why the bookkeeper shouldn’t have the key. And it reinforces the wisdom of having an audit committee checking account balances. That act alone would have caught this embezzlement seven years earlier.
 
Will the church ever get their money back? Probably not: the bookkeeper likely spent most of it. And insurance won’t cover most of the loss: an insurance policy only covers year-to-year. As a result, a $400,000 loss over eight years is only covered for $50,000.
 
The church did the right thing by reporting it to the police – 85% or so of church fraud cases are not. With a criminal record it’s less likely the next church will hire her. (Let’s assume they do background checks.)
 
How would you prevent this at your church?
 
  • Run background checks on staff who touch the money or the books.
  • Send bank statements to the pastor for a smell check before the bookkeeper gets them;
  • Review the bookkeeper’s reconciliation (bank statements and check registers);
  • Lock up checkbooks and don’t give the key to the bookkeeper;
  • Periodically check balances in all church accounts.