These questions were taken from an interview conducted by Steph Gregor from an article in Columbus CEO. (October, 2014)
- How does church accounting differ from other types of accounting?
- What makes Steeple Accounting unique?
- Why is record reconstruction a service line of your business? How often is it needed?
- How much of a concern is fraud prevention for churches?
- What is the return on investment of churches to engage your services?
Understanding the unique nature of “fund” accounting where donor designations are separated by church purpose and mission is key. When constituents have decided to contribute to your cause or ministry, they want to ensure that funds are being spent accordingly. Because of the high reliance on volunteers, churches may not have the “in house” expertise to use proper accounting procedures, keep up to date on recent IRS requirements and produce credible financial statements. That’s where Steeple comes in.
I attribute our distinctive niche to the combination of education and experience we bring to the table. Past experience in church administration, software training and recent education in the forensic accounting provide churches with a well-rounded resource for church compliance issues. Because we have been in the trenches working in various churches, we can relate to our customers’ environment.
Accounting records can be messed up for a number of reasons. Speaking as a former software trainer for Church Windows ™ (a proprietary church management software), often the accounting software has not been set up correctly. No matter what record keeping tool you are using, it starts with the Chart of Accounts. A variety of factors can complicate the situation from there. Inexperienced staff, lack of oversight and ignorance of church and clergy tax regulation may contribute to the lack of understandable financial reports.
When clients call us for a preliminary assessment, the solution almost always involves some sort of verification of existing records. In order to move forward with providing accurate reports, it is imperative to start with clean, accurate balances.
One of the primary components of the fraud triangle is opportunity. When volunteers or employees perceive that no one is watching, fraud is more likely to occur. Churches hold faith and trust in high regard as it pertains to donors, the clergy privilege and benevolence requests. This acceptance may promote a culture of leniency and relaxed standards when it comes to financial accountability. Many churches, for example, adopt a “forgive and forget” attitude – especially when it comes to those who commit fraud within their own congregation. Unfortunately, the lack of prosecution may have far reaching effects in religious communities because the perpetrator may move on and do the same thing at another church.
According to Church & Clergy Tax Report expert Richard Hammer, recent stats indicate that 15% of churches know of an embezzlement occurring during the past 5 years. This doesn’t count those that we don’t know about. Another discouraging indicator estimates that the amount of money stolen from the churches roughly equals the amount given to Missions on an annual basis. Imagine if those donations have been appropriated to the intended recipients rather than misappropriated by self-serving scammers. Yes, unfortunately fraud is alive and well in the church environment.
I guess I would answer that using a different perspective. What is the cost to the church if you fail to do things correctly? HUGE! I am working with a church out of state who is subject to large tax penalties because payroll taxes have not been remitted correctly. Often church leaders are not aware of what’s going on right under their noses. Employees and volunteers may not knowingly be doing things wrong, but a clean-up of inaccurate records is far more costly than doing it right in the first place! Steeple Accounting offers an accounting review that can spot discrepancies before they become problems. A second pair of eyes might just save you money and prevent fraudsters from taking advantage of loose internal controls.