February 11, 2014

THE GAMBLING PRIEST

A popular Ottawa priest pleaded guilty in an Ontario court last month to fraud and theft charges, the Ottawa Citizen reports. Prosecutors say an independent audit into the finances of the Blessed Sacrament church discovered that the priest had deposited more than CAN $400,000 in his personal account over a five-year period that couldn’t be explained. They say the priest wrote checks to himself and made various purchases from the church account, took cash paid by couples for marriage preparation courses, and deposited more than CAN $16,000 from church collection plate funds. Diagnosed as a “pathological gambler” by a court-ordered psychological evaluation, the priest used much of the money to pay gambling debts. As part of a plea deal, the priest admitted to defrauding the church out of CAN $130,000 and currently awaits sentencing. Even so, the priest received support from members of his parish throughout the trial, and the Archdiocese of Ottawa stated it would welcome the priest back to service once he had served his criminal sentence.

Lessons Learned

One might think that church clergy typically demonstrate ethical behavior beyond reproach, but this story proves otherwise. In fact, “ecclesiastical crime” in 2013 amounted to more than US $37 billion worldwide, or 6 percent of the US $594 billion given to churches — more than the US $32 billion spent on mission work to promote Christianity, according to the Center for the Study of Global Christianity. Furthermore, much of the fraud committed in church settings apparently goes unreported, in part because of officials’ reluctance to speak out against “revered” church officials and weak or nonexistent financial controls. In the United States, churches are one of the few nonprofit organizations legally exempted from the requirement to file an annual information return with the Internal Revenue Service (IRS).

In this particular case, few controls existed over the way in which church money was handled: The fraudster had the ability to write checks to himself without receipts, Sunday collections were kept in an unlocked rectory office and often were not counted for days, and the church’s finance committee did not meet to review financial statements.

So, how can the risk of fraud in churches — and more broadly not-for-profit organizations — be reduced? Fundamentally, operating a church needs to be thought of as running a business, with oversight and financial controls in place, qualified accounting and financial personnel, and regular reviews, if not audits, to ensure things are working as they should. More specifically:

1. Control access to bank statements. Never allow an individual who has direct access to bank accounts (e.g., access to blank check stock, check-signing authorization, and reconciling the bank statement) to initially receive and open the monthly bank statements. This is one of the easiest ways for fraud to go undiscovered. Change the mailing address on all bank statements to the address of a trusted individual such as a senior or administrative pastor, or better yet, a board member or deacon. This person should not have any access to the organization’s bank accounts.

2. Require dual signatures on checks for larger dollar amounts. For example, require that any check over, say, US $500 be signed by two people. Ideally, the two authorized signors of large checks should be the individual in charge of finance and accounting and a board member. Furthermore, the board member chosen to co-sign large checks should not be the same board member selected to review bank statements. Create a sign-off sheet that is handed in each week to the same individual entrusted to receive the bank statements.

3. Place a priority on establishing and maintaining basic accounting, payroll, and finance functions. This range of activities includes:

Separately tracking donor giving from the organization’s accounting system to allow tracking of individual deposits against aggregate ones.

  • Doing spot checks in the counting room.
  • Ensuring basic financial processes are reviewed and strengthened where needed — for example, that the payment of payroll taxes to the IRS and state and local tax authorities occurs appropriately. Fraudsters often try to remit these amounts to a shell company or organization that they have formed, or alter recipients’ names on checks.
  • Reviewing financials every month.

It’s perhaps sad to say, but one cannot assume that trusted individuals will not engage in fraudulent activities, given the motivation and opportunity. Auditors also can help, as part of their participation in their church community, by volunteering their services to help ensure it runs smoothly and free of fraud.


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