Sadly, church embezzlement is a real issue ... even for small churches. Which is why it is so important to set up and establish good internal controls... especially for credit, debit, and gift cards! See tips for setting up card usage policies and accounting for those cards below...
One such church embezzlement case that happened in my home state (Oklahoma), was a pastor that was accused of defrauding approximately $933,000 from his church and community development center.
He was accused of fraudulently transferring funds from the community center bank accounts to church bank accounts and then transferring those funds into his own personal bank accounts.
He was also accused of making large cash withdrawals from the church bank account that he used for his personal expenses which included a mink coat, a Rolex watch, hotels, restaurants, casinos, liquor, and automobiles.
Another high profile church embezzlement case involved the priest of a Canadian church charging over $200,000 in personal expenses with the church's credit card. Those expenses included trips to Las Vegas, massages, clothing, etc.
My first thought with both of these cases was where was the person reconciling the bank and credit card statements???
One of the best internal controls to guard against church embezzlement that a church can put in place is separation of duties AND reconciling accounts!
Many times when a church first starts up, a pastor or a brave volunteer may have to wear all the hats, but to avoid opportunities for church embezzlement or even the "appearance of evil"... set up some internal controls right off the bat.
Set up one person to be the treasurer or the bookkeeper, but not both. Note: if someone has access to the money, he should not have access to the financial records! If possible, the person entering your accounting data should not be the person writing checks ... and you should have another individual (not related to the others) reconciling bank/credit card statements.
"Fraud, theft, and mistakes are as much of a concern with the money going out as they are with the money coming in as you have seen in living color in the church embezzlement cases described above. Procedures and controls need to be in place as it relates to the money paid out.
If your church or nonprofit organization uses credit, debit, and/or gift cards, appropriate procedures need to be documented, so volunteers and employees understand how and when a card can be used". (excerpt from Church Accounting How-to Guide)
Every individual authorized to use a church credit, debit, and/or gift card should read those guidelines and then sign a statement acknowledging their agreement to adhere to the terms of that written debit/credit card policy.
The card policy should outline:
See an example of a Credit and Debit Card Policy. You can also do a web search for company credit and debit card policies and find some good templates that you can customize for your particular organization.
Let me emphasize again here...that it doesn't matter how small your organization is...we should avoid making it easy for church embezzlement and at the very least...avoid the very appearance of evil. One of the best control to put into place is the policy that an individual using the credit/debit card and writing checks SHOULD NOT be the one reconciling the bank/credit card statements.
1. Personal expenses should not be allowed to be charged to the church's card. Any personal charges that were inadvertently charged to the card should be repaid immediately.
2. Set limits!
3. Require receipts! Your credit card statements alone do not meet IRS requirements of record-keeping documents. Actual receipts should be provided to the appropriate person within 30 to 60 days of credit card charge. If they do not submit the receipt within your written policy stated time, the amount of the charge should be charged as taxable income to that individual. This is especially important if your church is using gift cards for volunteers and staff to purchase supplies for the church. As I outline in the next section, you have to treat those cards as "petty cash" and require receipts for EVERY purchase on them.
4. Use the church credit card for church business expenses such as fuel for church-owned vehicles, church-related online orders, or office supplies. Fuel charges for personal vehicles used in church business should be handled through an ARP (accountable reimbursement plan)....not the church credit card. Out-of-pocket ministry expenses should be reimbursed through the church's bill pay options ... following your ARP guidelines.
5. Use preventative and protective measures to prevent credit card fraud and theft such as not giving the church's credit card number out over the phone unless you know the company to be reputable, keep your eye on the card the whole time a transaction takes place, etc. Another preventative measure is NOT allowing any online purchases while on a public wifi. Always include in your policy that the church's credit card company should be notified immediately if fraud or theft occurs!
Some tips for accounting for credit, debit, and gift cards:
1. If you use accounting software that has the capability of connecting your credit and debit card accounts, connect them and let all of the transactions roll into the software to be properly accounted for.
I have seen quite a few churches that just record the credit card payment by splitting it into what the transactions were for. This is not a good practice. First of all, if you don't pay the balance off every month... it can turn into an accounting nightmare =(
Secondly....you are opening the door for mistakes and making it easy for church embezzlement to happen.
You need to account for EVERY credit card transaction by setting up a current liability account and recording EVERY transaction in that register. Payments on that account should be recorded as "transfers" from your bank account.
2. Gift cards can be a good option to handle volunteers and staff picking up supplies; however, they MUST be included in your accounting books. They should be setup as "cash on hand" or "petty cash" accounts. Because you will have to manually enter those transaction...proper receipts are imperative! You can set up their own register, manually enter the transactions, and reconcile each month by looking at the last receipt. It will have the card balance on it.
If you are giving gift cards to needy people, you will need to do the same. Create a "cash on hand" account in your accounting software, "transfer" the initial purchase of the card(s) from your bank account, and record each time a card is given to a needy individual. You don't have to record the name of the card recipient in your accounting software (if worried about confidentially), but there should be a record somewhere of the name and contact info of each recipient.
See more on accounting for gift cards in this article on "Year End Checklist".