posted on: Friday, February 06, 2009

By Gary Snyder

“Today we are living in a different world. As stewards of the funds entrusted to us by the people of our parishes, we have a duty to enhance controls and to . . . strictly monitor those controls.” Bishop Edward U. Kmiec, Buffalo N.Y
"Every church has the same problem of being too trusting of their priests and ministers and church workers…so they don't put in the kinds of internal controls common in the business world." Chuck Zech, co-author of the study report, "Internal Financial Controls in the U.S. Catholic Church."

This is the third in a series of articles on nonprofit fraud. The latest edition of Nonprofit Imperative points out the need for fraud prevention in the religious community. Within one week, NI found the following:

• One priest was sentenced to 13 years in prison for stealing up to $1 million from two Virginia parishes.
• Another Catholic priest, this one from Florida, faces trial for allegedly stealing one hundred thousand dollars is seeking a deal.
• Two more priests who authorities say for years misappropriated more than $8 million from the offering plate of their Palm Beach County (FL) church have pleaded guilty and are awaiting sentencing.
• A pastor of Hilltop Community Church (VA) accused of embezzling more than $100,000 from his church had been previously convicted in Virginia Beach in 1994 of at least seven felonies included embezzlement.
• A former finance director at a St. Paul (MN) church is charged with embezzling $37,000 from church deposits.
• Dallas Theological Seminary is suing its former chief financial officer, attempting to recover more than $165,000 that the school says he embezzled.
• A bookkeeper at George’s Sixes Presbyterian Church paid her mortgage and utility bills for four years and possibly some cocaine and marijuana.
• The former pastor of a North Carolina church has entered pleas to embezzling more than $298,000 from a Winston-Salem church. These thefts stemmed from his 20- years as pastor at First Baptist Church. He was sentenced to five years of probation and he has agreed to repay more than $120,000.

Almost 10 million dollars of churchgoers’ contributions are gone in such a short span and the Internal Revenue Service may have a problem investigating these misdeeds (see this) without an audit.

These offenses are shocking because such problems are not typically made public. Churches usually adopt a “trust and forgive” attitude, as the churchsolutionsmag.com indicates. They tend to be overly trusting and they are quick to forgive. Unfortunately, crooks are aware of that mindset and so churches are natural targets.

Some of the largest Ponzi schemes have occurred within the religious community. The church has sanctioned some, while others have been the result of informal communal relationships. All crises were borne out of blind trust. Take last weeks Ponzi indictment of an Arizona Christian nonprofit, Nakami Chi Group Ministries International, which promised 24 percent annual returns and where the owner was dipping into the money to make a down payment on an $800,000 home and to pay gambling debts and other personal expenses. Investors included one pastor, church elders and members of several churches.

We know that Bernard Madoff’s alleged $50 billion Ponzi scheme targeted his fellow Jews.

And then there is Minnesotan Tom Petters who was arrested and charged for his own alleged Ponzi scheme in which he took $3.5 billion from members of his own evangelical Christian faith, many of whom were pastors that lost their retirement schemes. He focused on church groups and nonprofits. He is in jail awaiting a trial.

Since most religious organizations believe that it can’t happen at their church or synagogue there are seldom proper controls put into place to effectively prevent fraud. Malfeasance is rampant. A 2006 survey at Villanova University found that 85% of Roman Catholic dioceses had discovered embezzlement of church money in the previous five years, with 11 percent reporting that more than $500,000 had been stolen.

Religious organizations need to make a commitment to openness and transparency with a strong conflict-of-interest policy. All policies must be observed with all staff having bought in to that adherence. The policies, at minimum, should have checks and balances in the handling of cash, which should include at least two people involved. The implementation should be a partnership between the religious leadership and the lay leadership with neither rubberstamping the others decisions. Both should be mindful of how volunteers perform their duties and how they stack up against the organizations policies and practices.

It’s a huge minefield that needs to be addressed forthrightly.

The previous articles on nonprofit fraud were on veteran and government malfeasance. Upcoming articles will be on cultural fraud, school fraud and nonprofit/political fraud.

Gary R. Snyder is the author of Nonprofits: On the Brink. He is a frequent lecturer and author of articles in numerous publications and blogs. His email is gary.r.snyder@gmail.com; website: www.garyrsnyder.com, phone: 248.324.3700.