Financial Safety for Congregations

It happens more often than you think it should. The congregation seems to be vital, even growing, but the money in the collection plate doesn’t keep up with the growth, or there seems to be a shortfall every month. There might be grumbling about how the new folks aren’t pulling their weight financially. Then someone notices some irregularities, even though a trusted, long-time volunteer or staff member has been responsible for the money. And then it comes to light that hundreds, even thousands of dollars are unaccounted for.

Increasing at an annual rate of nearly six percent, researchers expect church financial fraud to reach the $70 billion mark by 2025. That’s still not the whole picture. About 80 percent of all cases of church fraud go unreported and, therefore, are not included in statistics (Source: Church Law and Tax.) Church Law and Tax reports from the 2021 survey that 4% of churches reported financial fraud within the past year, 9% had fraud 1-5 years ago, 4% had fraud 6-10 years ago, and 14% had fraud over 10 years ago.

Congregations are especially susceptible to theft, embezzlement, and fraud, including scam email and text messaging. We foster an environment that encourages trust and vulnerability in other aspects of congregational life. We are often so desperate for volunteers we don’t ask for the kind of skills or accountability that we should to meet our fiduciary responsibilities. And we often inherit systems, habits, and volunteers that would be hard to change without a good reason. Here are some recommended practices and policies that every congregation should have in place:

General Financial Fraud Prevention Tactics

  • Put the congregation’s financial policy in writing. Keep expectations consistent and clear.
  • Give those responsible for financial matters access to the written policy to prevent any plea of ignorance from a dishonest employee or volunteer.
  • Conduct annual background checks and run annual credit reports on those who have access to church funds.
  • Require at least two unrelated people to account for all cash and checks received during services and/or fund raisers.
  • Separate bookkeeping responsibilities among different people so as to safeguard against embezzlement.
  • Require annual reviews or audits.
  • Hold people with access to financial documents to a covenant which clearly outlines that they will be removed from the position if the covenant is broken.

Take this Fraud Prevention Quiz using scenarios of actual cases of congregational fraud and embezzlement.

Recommended Practices

AG Financial suggests the following best practices for reducing the risk of fraud and protecting against embezzlement in your congregation.

  • The signers of checks must not be the person authorizing the expense.
  • Require two unrelated individuals to sign checks of more than a predetermined amount, and ensure that the signature documentation (signature card) held by the bank shows this restriction. Note: many banks do not check for double signatures, but this should not discourage your use of this policy; you will have a better case against the bank should there be financial fraud in amounts that exceed the two-signature policy.
  • All disbursements should be made by pre-numbered checks and must be accounted for on a weekly basis.
  • Require written consent of two individuals to approve the transfer of sums over a predetermined amount into or out of accounts, including line-of-credit draws.
  • Bank reconciliations should be approved by someone not authorized to sign checks or make the deposit, and it should be done promptly. It is important to look for check numbers out of sequence.
  • Every check that's written should have written documentation (check request/receipt/invoice) except for payroll checks. Payroll records should be maintained separately to be able to trace payments back to the records, without the records being readily available to members without the need to know. Additionally, if using a payroll system, spot check the data being submitted to them against your internal time sheets.
  • Invoices and check requests must be marked paid with date and check number and filed.
  • Do not sign blank checks in advance.
  • Do not use signature stamps.
  • Have a Credit Card Policy and approval process for purchases. Include in this policy that credit cards may not be used for personal expenses.
  • There should be two unrelated cash counters at every service, with each completing an offering sheet. Have each counter verify the other’s forms.
  • Rotate the money counters with different individuals each week.
  • Counting should be done behind a locked door.
  • Checks should be stamped “For Deposit Only” immediately.
  • Deposits should be made as soon as possible. Place deposits in a locked bank bag, and place into a safe if you can’t make the deposit immediately. Use of a night depository is recommended if bank is closed.
  • Stow petty cash in a safe. Establish a procedure for its use and disbursement, minimizing access and treating it like a bank account, with regular audits and reports.
  • The minister should not be a check-signer.
  • These three reports should be required to be produced and evaluated monthly for Board/Finance committee meetings: income statement, balance sheet, and statement of cash flows.

The Presbyterian Mission suggests Best Practices for Church Internal Controls (PDF) and Fifty Internal Control Practices for Every Church (PDF).

In addition, the increasing use of online giving requires the same carefulness to safeguard that funds cannot be funneled off to individuals. Reconciliation of these giving methods should be done by an unrelated person. Additionally, consider reconciling the annual donation receipts sent to donors to the total amounts received by the congregation in your financial records.

Congregational Financial Fraud Red Flags

  1. One person is responsible for it all. How to address: Create a system of checks and balances by ensuring there are multiple people responsible for handling aspects of the church's finances. For example, the person processing checks shouldn’t be the same person who makes the bank deposit. The individual making payments from an account should be checked by another person who balances the account.
  2. Counting money alone. How to address: Use the rule of twos. At least two unrelated people who are not in a love relationship with each other should collect and count the offering.
  3. Inadequate supervision. How to address: Bank reconciliations should be approved by someone not authorized to sign checks or make the deposit and should be done monthly. Congregations should schedule audits by an outside organization regularly. (From "Financial Red Flags and Proactive Practices" by American Church Group.)

Checklist and Sample Policies