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8 Simple Steps to Protect Your Church from Fraud

By Ken Sloane

Church Fraud Article

For the past couple of months, I’ve been doing research and writing for an upcoming online course on financial ethics for church leaders. Since I’ve been immersed in this topic, I thought I might share some of what has been filling my work hours these days. This is not intended to be a complete list, but a place to start.

What I often refer to as “financial misconduct’ concerning church finances, the accounting world (as well as law enforcement) refers to simply as fraud. It usually applies to employees in business but can include volunteers empowered to serve in churches or nonprofit agencies. There are three basic types of fraud: asset misappropriation, bribery and corruption, and financial statement fraud. When fraud is found in churches, people often say, “We didn’t think that could happen here.” By taking some simple steps, your church may never have to say those words!


Fraud examiners often refer to “The Fraud Triangle.” These three situations that fuel fraud might lead someone to step over the line: opportunity, financial pressure, and rationalization. If all three are present, the temptation and potential for misconduct are exponentially higher.

It’s hard to imagine ways your local church could affect the financial pressure present in the lives of church staff and volunteers or affect the way human beings under pressure might rationalize the decision to “cross the line” into financial misconduct. However, with adherence to some clear and easily explained internal control policies, your church can make a serious impact on the “opportunity” factor.

(For a more in-depth exploration of the Fraud Triangle as it applies to a church setting, see “Ministry & Money: A Practical Guide for Pastors” by Janet & Phil Jamieson, p. 126, “Actively Engaging in Preventing Fraud.”)


One of the most crucial safeguards is embedded in the make-up of the finance team: a finance chairperson, treasurer, and financial secretary – positions not combined and not held by members of the same immediate family (¶258.4, Book of Discipline). While the Book of Discipline mandates this for the treasurer and financial secretary, it is highly recommended that none of these three positions be combined or held by people closely related to the others. This is an important control for every church of any size – even the smallest-membership church should recruit for these positions, so they are not held by members of the same family.

With so many churches moving their financial systems to computer-based software or web/cloud-based financial management applications, it may be tempting to set aside these crucial boundaries and allow these functions to be carried out by a single person working in the church office. A staff person can assist the treasurer and/or financial secretary, but the holders of these two positions cannot transfer the responsibilities for the safeguards and the segregation of these duties. The financial secretary is responsible for accuracy and timeliness in receiving and recording the donation income of the church (including arranging and overseeing counting teams), as the treasurer is responsible for the expense and disbursement side of church finances. The finance committee chairperson needs to be vigilant to ensure these boundaries are effectively in place.


The financial world is moving away from writing/printing large amounts of paper checks and is moving toward electronic payments. In many settings, some paper checks will still need to be used. Some churches have added the safeguard of requiring two unrelated people to sign each check (or checks over a certain amount). For payments not made by check, but through a BillPay or electronic funds transfer, the person who submits or directs transactions such as these is equivalent to a check signer for the purpose of defining clear internal controls.

Having someone other than a check signer approve invoices for payment is an important safeguard. In the case of a recurring payment (such as a loan, insurance, or service contract payment), a single approval can cover payment – unless the amount varies from month to month. If the church has a credit card (or cards) for staff use, the invoices should be reviewed for individual purchases and approved when all purchases shown are verified.


The structure of counting teams is also an important safeguard. Paragraph 258.4a of the Book of Discipline directs that the finance committee “shall designate at least two persons, not of the immediate family residing in the same household to count the offering. They shall work under the supervision of the financial secretary.”

Counting should be conducted at the church, ideally at a time when others are still in the building. It should not be done in someone’s home. Counters should not record deposits into the accounting system; instead, the counters should give a record of all funds received to the financial secretary and treasurer (¶258.4a). A wise practice is to attach the deposit receipt to the counter’s sheet for the applicable week. Having a plan for the rotation of the counting teams is a good practice. This may involve switching up those partnered together or simply rotating folks out of the counting duties after a reasonable number of years. Having a substitute counter who can fill in when someone is away breaks the routine of two people who always count together.


Financial reports are a key internal control for churches. Monthly reports are ideal, but at the minimum, the reports should be quarterly and should be provided promptly after the close of each quarter.

Janet Jamieson, Chief Financial Officer for Discipleship Ministries and a CPA, writes in the “Guidelines” Booklet for Local Church Finance Committees:

One important role of the committee on finance is to measure the church’s progress in reaching its financial goals and to report on that progress in a way that is clear and helpful in making decisions. These financial reports should be easy for users to follow, provide enough information to present an accurate picture of the financial condition of the church, and be available on a timely basis. – Guidelines: Finance (Cokesbury), 21.

Here are two samples she offers as the basic report format that will work for many churches, though of course the number and names of church funds and categories will vary:


The culmination of your good work in keeping safeguards and internal controls in place happens when you conduct the annual local church audit – a crucial safeguard itself! Not only is it a way to identify misconduct (or practices that might lead to misconduct), but an audit builds donors’ confidence and provides an opportunity to model transparency and grow greater trust! I recommend that church leaders let the congregation know when the audit is being done and celebrate it as a tool to ensure that their donations are managed as safely and efficiently as possible!

The Local Church Audit Guide and FAQ supplement produced by the General Council on Finance and Administration is an excellent resource to lead any church through the audit process. It reminds us that, for many churches, the audit can be completed by one or more volunteers (though not the treasurer, financial secretary, or any immediate family member of either of those people).


My main purpose in advocating quarterly giving reports for every church has not been to shame people who are behind on their pledges but to seize the opportunity to say thank you to those who are the lifeblood of the church’s mission and ministry. However, these reports do offer an additional check that donors’ giving is recorded properly. You might find this article on giving statements helpful.

What might be found when you ask your congregation to check reports against their records may not be misconduct or fraud but oversight (or sloppiness) when a mailed gift got overlooked, buried in a pile of mail, or left sitting in an unattended inbox. It also might indicate something more serious that needs investigating. Check out this article on securing mailed donations.


Every church has its own way of doing things, whether that involves decorating the church for worship, determining where the youth are allowed during their fellowship time, or deciding who serves what during fellowship suppers. Policies for handling money in the church are different. They need to be written, approved, and made accessible for leaders and donors to find and read. We call this transparency. It builds trust but also adds security. Some of the steps I’ve shared can be found in the Book of Discipline, ¶258.4.

These policies range from gift acceptance policies, policies for memorial gifts, how endowments are used, and guidelines for the pastor’s discretionary fund or accountable reimbursement. The Lewis Center for Church Leadership recently re-published a great article by Bonnie Marden, stewardship consultant, that highlights policies your church should consider.

My original title for this piece was “Eight Easy Steps…,” but I know that changing practices in local churches is not easy. One in three churches will experience some kind of financial misconduct. When it is discovered, the most frequent action taken is to improve the church’s safeguards and internal controls. A much better idea is to take these steps now and avoid being the ones saying, “We didn’t think it could happen here.”

Ken Sloane is the Director of Stewardship & Generosity for Discipleship Ministries of The United Methodist Church.

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