Merriam Webster defines Collude as – to work with others secretly, especially in order to do something illegal or dishonest. And Collusion as – a secret or illegal cooperation or conspiracy, especially in order to cheat or deceive others.
And that’s why collusion is so powerful in a negative sense.
We are seeing this daily in the news in regards to our Government – I’ll leave it at that.
But – it does remind me that the Church is susceptible to fraud just as the Government or any other business or organization is. The bottom line is this – Fraud can occur when:
a). an organization has weak or non-existent internal control systems in place or
b). when collusion occurs. (with others inside or outside of the church).
An inherent weakness in internal control systems is when two or more parties collude – it makes it more difficult to detect.
Pastor, you may be firmly convinced this could never happen in your church. After-all, Joe and Sue are completely trusted, right?
Newsflash – 100% of fraud is committed by someone that was trusted.
Consider these stats just as they relate to churches:
- 1/3 of churches are defrauded. (many go unreported)
- The average tenure of the fraudster is 8 years. They were there a long time before the illegal activity began
- The fraudulent activity occurred for 18 months on average before being caught
- 40% are caught via a tip
- The average loss to the church is $120,000
So, how do you guard against fraud/collusion?
1. Understand the why:
At the end of the day, it’s the opportunity (created thru weak controls or collusion) coupled with a financial need or pressure along with some sort of rationalization.
2. Beware of these Red Flags:
- Weak or non-existent control systems. (Segregation of Duties and the 2 Person Rule). Fix this ASAP if this is the case. Review them annually for improvements needed, particularly in a growing church.
- Employee doesn’t take vacations
- Employee doesn’t accept job promotions
- You become aware of a personal financial problem
- Evidence of living beyond means – lifestyle, possessions
- Have major expenses you suspect can’t afford – major medical, kids in college, and etc. That sounds really mean, but the need has presented itself
- Drop in church revenues
- Increase in church expenses
- Disorganized records
- Missing documents/receipts
- Duplicate payments to vendors
- It’s hard to obtain financial information
Research says the #1 deterrent to fraud is the fear of getting caught. (vs prosecution or jail time).
3. Implement the following and review it annually with all staff:
Delineate and cultivate a culture of High Ethics. The Lord expects nothing less. We must avoid even the appearance of evil. The Congregation has given their trust and it must be maintained at all times. Not only with regards to finances, but with their children, the church property and so on.
Explain The Why – what’s at stake is everyone’s personal testimony along with that of the church in the community. Fraud or Abuse is a huge and unnecessary hindrance to the Mission of the church and the Gospel.
Spell out the legal and employment consequences of being found to have committed fraud or abuse.
Let them know Systems are in place and will be monitored for noncompliance AND collusion. In addition:
Internal Audits will be conducted
External Audits and/or Internal Control Assessments will be done
Vacations will be taken – no exceptions. Others will be cross-trained and will perform their duties while out.
Background checks will be conducted annually (credit and criminal).
Implement a whistle blower system and encourage its use by ensuring a safe, confidential environment in which to report the appearances or evidence of fraud/wrong doing. Assure them of non-retribution for the disclosure of suspected wrong doing. (Remember 40% of fraud is caught this way).
Closing Thoughts:
Pastors, you may want to just encourage your staff to come to talk to you about needs that come up as life happens. A spouse loses their job, a major illness happens and so on.
Pastors, develop personal relationships with your people. Not so you can look for wrong-doing, but because you love them.
I hope this helps.
Take action now.