Fraud In Houses Of Worship

The below article titled "Fraud in Houses of Worship" came out in a Fraud Magazine recently. I have had a chance to read it and the story told in the article is exactly what I have always believed possible to happen even in Buddhist temples/centres or associations. That is why I have written on the topic of "risk management" in my blog. But by and large, I am not sure if people have taken heed of my advice. And it is true that most people do not think it can happen to their Buddhist centre/temple/monastery. However, most temples and centres are headed by monks and nuns who may not be very knowledgeable about "governance" issues or "risk management". Most of them may never have worked in commercial sector nor public sector before, hence I suspect the Sangha have very little knowledge on what constitute "best practice" in our Buddhist circles. What they should do is get advice from people who do have this knowledge. It is not that difficult actually. You only need to ask yourself "what could go wrong".  Hopefully after reading the article below, you will go back and re-read my previous blog posts on the same subject.

Fraud In Houses Of Worship
What Believers Do Not Want to Believe

Robert M. Cornell, Ph.D., CMA, ACFE Educator ; Carol B. Johnson, Ph.D., ACFE Educator Associate; Janelle Rogers Hutchinson

Houses of worship are particularly vulnerable to fraud, but most feel they are impervious. The authors provide reasons why churches feel so bulletproof and seven practical steps fraud examiners can use to help churches stop fraud in its tracks.

An accounting professor who teaches a fraud investigation class recently told a story about a student in her class who approached her for help on a personal project. The student's church had asked the student to attempt to determine the dollar amount of damages in a recent embezzlement. The perpetrator, a former church secretary, had been defrauding the 200-member church for 18 months by writing herself duplicate paychecks, stealing cash from donation deposits and taking out credit card accounts in the church name, among other schemes.

The church discovered the fraud when the secretary was called away for a family emergency, and the previously inattentive manager received a phone call about an unpaid credit card bill. The manager did not know the credit card existed. Because the church had not segregated employee duties, the secretary had free rein over all aspects of church finances: she kept the books, paid all the bills, handled cash receipts, managed the payroll, issued paychecks and reconciled the bank account. The sky was the limit for her fraud. A simple search of public records would have revealed that the secretary was in financial trouble — a serious red flag for fraud. But the church did not conduct that search until it was too late.

The professor was not surprised by such a common scheme. However, she was taken aback when she opened the student's work file to review the case. She recognized the name of the perpetrator as a secretary in her church and confirmed this identity by questioning the student investigator. Internal controls in the professor's church were a bit better — it had segregated some accounting duties — but were still insufficient. In fact, internal controls were bad enough that no one could ever know if the secretary stole from the professor's church.

It was quite common for people to drop cash and checks by the church office during the week and leave them with the secretary for use in special funds, such as one to aid local homeless people. It would have been easy for the secretary to simply pocket some of the funds, and no one would have been the wiser. The secretary eventually resigned; it is unknown if she stole from the professor's church during her tenure there. She was replaced with another secretary who had her own financial problems — her home was in foreclosure within six months of taking the job.

The professor advised church officials that they needed to improve internal controls, but the staff members believed that "no one would ever do such a thing here." Indeed, fraud examiners who deal with finances, fraud and internal controls in houses of worship may be labeled overreacting conspiracy theorists when they tell church staffs they may have fraudsters in their midst. However, fraud examiners know that houses of worship — churches, synagogues, temples, mosques etc. — are among the most vulnerable entities.

Ref: Fraud Magazine, Jan. 2012.