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What Every Leader Needs to Know about Fraud Risk

What Every Leader Needs to Know about Fraud Risk

P2P 2-25-16 - blog imageEvery employee in the church or nonprofit ministry plays a part in preventing fraud.

Many times, we think that fraud only happens in large corporations like Enron or WorldCom, but it can happen to small nonprofit organizations too. Unfortunately, many religious and charitable organizations may think their organizations aren’t at risk because they employ people who, they feel, possess strong moral and ethical convictions. Others may erroneously believe that strong controls require additional staff and great expense. As a result, leaders let their guard down and fail to implement processes with strong controls that ensure accountability.

One of the most frequent abuses in church finances is using nonprofit funds for personal use by stealing cash from the offering plate, writing unauthorized checks, or using the church credit card for personal expenses. External pressures such as personal debt, medical crisis, or an unexpected job loss can cause even the most loyal employee to make a rash and unfortunate decision. These perpetrators may rationalize their actions by thinking of the theft as just a temporary loan, fully intending to pay it back. Others justify their actions because they feel underpaid or undervalued and believe they are owed the extra pay.

If a fraud occurs, the church will lose more than just money. Donor confidence will rightly be weakened, and they may decide to reallocate their contributions to other organizations. Further, the reputation of the church and its pastor in the local community could be permanently damaged.

Can your church afford a loss of this magnitude? More importantly, do you know how to protect your organization from fraud?

Why Accountability Matters

In practical terms, without accountability, human nature tends to drive us to the dividing line between right and wrong, where we encounter the gray areas of life. Certainly, making right choices involves listening to the leading of the Holy Spirit; but it also involves submitting ourselves to others and seeking wise counsel. The Book of Proverbs reminds us that “in the multitude of counsellors there is safety” (Proverbs 11:14 KJV). Failing to submit oneself to another’s accountability creates opportunity to cross the line into misuse and abuse.

Accountability and transparency of financial operations aren’t meant to constrain leaders; instead, they are meant to protect leaders and the reputations of their organizations. If I could paraphrase that verse from Proverbs in financial terms, it would say: Where there is a multitude of counselors who discuss, review, and approve the financial operations of the church, there truly is safety.

One of the most important steps leaders can take to prevent fraud from occurring in their church is to embrace accountability and integrity and decide these are nonnegotiable values in the church. This means practicing what you preach and modeling biblical stewardship.

While you and your leadership are modeling these nonnegotiable values, weave these themes into your preaching and teaching. Teach on stewardship regularly and the importance of accountability and integrity in personal finances as well as corporate finance. Be transparent by providing regular financial reports.

I would also encourage your ministry to review and adopt stewardship standards to demonstrate your commitment to biblical stewardship and financial accountability.

— by Rollie Dimos, adapted from his new book Integrity at Stake: Safeguarding Your Church from Financial Fraud. Discover more about stewardship standards in the book.

How to Use This Book

Share this book with pastors, church leaders and administrations, because Integrity at Stake is packed with practical tools to reduce fraud—including a fraud risk assessment and steps for performing an internal audit. Then as you read the book’s collection of case studies, learn from organizations that struggled with challenges similar to yours. You’ll find tested methods to improve controls and reduce the risk of fraud within your own organization.