A Church Under the Halo of Fraud and Embezzlement

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When fraud is suspected within a religious organization, it presents a unique layer of complexity for investigative work. Stephanie Marchand, CFE, CPA broke down one such investigation during her career in her session at the 36th Annual ACFE Global Fraud Conference, entitled "Thou Shalt Not Steal: Confessions of a Religious Organization Under Investigation.” 

Marchand’s case study took attendees to southern United States, where embezzlement was suspected at a religious organization. Hope Church was identified as a 7,500-member church (by some calculations, a megachurch) with an annual revenue of $20 million. Just before the investigation, there was an increase in expenditures for a capital improvement project. 

Staff at Hope Church recognized possible fraud involving the misuse of credit cards, discretionary accounts and purchases. Some employees believed to be involved were terminated. That is when Marchand’s investigative team entered. Marchand used pseudonyms for her presentation. 

Before Investigators Arrived 

  • About six months earlier, Hope Church fired Peter for personal transactions on his church credit card following a vacation. 

  • Two months later, Simon, Peter’s boss, was fired due to performance issues. 

  • Since both the main subject of the investigation and his supervisor were terminated, investigators could not interview them. 

Goals of the Investigation

  • A deeper analysis of the possible embezzlement. 

  • Assess other areas of financial exposure and risk. 

  • Provide recommendations for improvements of controls and processes. 

Findings 

There were notable weaknesses in several systems — or lack thereof — in place at the church: 

  • Cash donations: There was a lack of segregation of duties since only one finance employee recorded cash deposits in the financial system and handled the reconciliation. 

  • Payroll: Simon’s salary increased 200% in two years. A board member approved this, but that person is no longer part of the board and there are no longer records of this salary increase. 

  • Bank account and financial systems access: Only one employee had a signature stamp for physical checks. Unfortunately, that signature stamp was often left unattended. 

  • Communications and technology: Investigators tried to search for suspicious terms in email and Slack communications, but communication methods varied between church employees. It was difficult to search for any suspicious terms. There was also no inventory of church laptops. 

  • Disbursements: 

    • Two $1,000 checks were made out to Peter. The financial director issued the checks and didn’t ask for an explanation. 

    • A check request form was required for payments, and a special email address was set up for Peter to submit expenses related to the capital improvement project for Simon’s approval. Unfortunately, Peter had access to this email and could approve his own payment requests so investigators had a hard time identifying who approved various payments.  

In general, Marchand and her team found that there was not a clear set of processes at the church and there was no segregation of duties. Fortunately, it did not appear that Peter was taking any more funds or payments from the church that he was not entitled to. However, it was discovered that Peter did use the church credit card to buy many things, such as designer clothes, electronics, tools and more that he returned after he was terminated. 

A Shock to the (Financial) System 

These initial discoveries led Marchand to look at the church’s credit card policy, which ended up being quite shocking to her. She found that a missing receipt form was only needed if an expense was more than $500 and managers only needed to approve expenses on employees’ credit cards if they were more than $5,000. 

About 30 to 40 employees of the approximately 100 at the church had a company card. Some of the 40,000 credit card transactions during a four-year period included a $1,000 birthday party for an employee, a $1,500 car rental (no description or purpose provided), multiple iPads, laptops, AirPods and much more. 

Meanwhile, Peter’s expenses included a $6,000 couch for his home office, $1,000 on flannel shirts and, probably more random, $500 on jars of honey. In total, Peter racked up close to $40,000 in personal purchases. Initially, it was thought he spent $10,000 maximum. 

Simply put, there was not a proper system in place at the church to track and identify expenses and possible reimbursements. It was later learned that Peter shared his credit card number, so it was unclear which expenses were his. There were also many expenses related to the capital improvement project that muddied the records. 

It was difficult for investigators to connect who was responsible for what. With his attorney by his side, Peter ended up confessing to many of the expenses, but without policies, much of what happened was a bit of a gray area. 

“Things aren’t always what they seem,” said Marchand. “Especially in an environment with minimal control.” 

Remediation 

Marchand noted a “culture of overspending and lack of policy enforcement” at the church. Her team recommended the church enhance financial controls and accountability, segregate duties, lower the expense threshold, hold less reliance on credit cards and put better tracking in place.  

Above all, Marchand wanted the church to “[foster] a culture of ethics and compliance with a tone at the top and a focus on whether the spending choices are in line with the church’s mission.”