Follow these fundraising financial safeguards to ensure that donations are collected securely and properly during charity fundraisers.
Churches and ministries often host fundraisers to support various projects like mission trips, community outreach, facility improvement and staff support. As non-profits, churches rely a great deal on the funds they raise and therefore they have to maintain financial security and trust from the donors which includes creating a secure fundraising atmosphere. Regardless of the size of the church or the number of staff members they use, it is important to maintain a professional approach to donation management and follow safeguards to ensure that church financial fraud is avoided and donors’ contributions are received where expected.
1. Ensure that equipment and food service conforms to safety standards.
Since many events involve food service or use of various equipment, it is a smart move to inspect these features for health and safety violations. If possible, use a certified inspector for conducting these inspections, so that there can be legal support if something goes wrong. If using a vendor, ask for references and qualifications before engaging them for an event. While these activities aren’t directly involved with fundraising finances, it is important to maintain safety in these areas for safekeeping of attendees and protection against lawsuits.
2. Require those responsible for fundraising events to submit financial reports.
According to a survey conducted by our church finance experts, a full third of the respondents have no reporting mechanism for special event fundraisers. While no one likes to assume that a volunteer working at a fundraiser will skim a little of the top, there is nothing wrong with requiring accountability, even as small as having them write and submit a financial report. Safeguards like written reports are a step in the right direction and, when coupled with other measures like multiple persons involved with managing funds and detailed records of tickets and/or products sold, the fundraising event has a better chance of avoiding theft and gathering funds successfully.
3. Secure funds as soon as they are gathered.
Regardless of whether funds are received at one time or continuously, it still should be a priority to secure cash and checks as they accumulate. Keep in mind that it is safer to entrust multiple people with the collection of donations, rather than just one with less accountability, so have at least two people in charge of transporting money from the collection to a safe room where the donations can be kept locked up and safe until counting and banking deposits. With volunteers providing sales reports and volunteers collecting the money, it should be a matter of routine to analyze the reports and totals to make sure they are in agreement.
4. Provide donors with receipts for their tax records.
Donors who wish to claim charitable donations for their federal income tax returns have to provide proof, either in the form of a bank transaction or a receipt from the charitable organization that received the donation. According to the IRS:
“An organization that does not acknowledge a contribution incurs no penalty; but, without a written acknowledgment, the donor cannot claim the tax deduction. Although it is a donor’s responsibility to obtain a written acknowledgment, an organization can assist a donor by providing a timely, written statement containing the following information:
1. Name of organization
2. Amount of cash contribution
3. Description (but not the value) of non-cash contribution
4. Statement that no goods or services were provided by the organization in return for the contribution, if that was the case
5. Description and good faith estimate of the value of goods or services, if any, that an organization provided in return for the contribution
6. Statement that goods or services, if any, that an organization provided in return for the contribution consisted entirely of intangible religious benefits (described later in this publication), if that was the case”
Even though the responsibility lies with the donor to acquire proof of their donation, a charitable organization that offers the receipts to assist their donors with the task exhibits courtesy and gratitude. By making the proof of donation process simpler, fundraising organizers can encourage even more donations and facilitate the process of raising funds.
Weeds in the Garden provides financial consulting for churches and ministries
If you’re wanting to plan a ministry fundraising event and would like assistance with keeping donations secure and volunteers accountable, contact Weeds in the Garden. Experts at detecting fraud and preventing church theft, Weeds in the Garden has years of experience in church and ministry accounting and financial development consulting.
Part 7 of our ongoing Fraud in the Church series. PSK in cooperation with the National Association of Church Business Administration (NACBA) conducted a survey to determine the extent to which churches are attempting to address the problem of church fraud. We asked them to respond to this statement:
Our church follows written guidelines in administering benevolence fund activity.
Many churches establish benevolence funds to assist needy persons. This is a normal and expected function of any church. However, if assistance programs are not monitored closely the benevolence fund can become a target of theft. Benevolence funds are favorite targets for several reasons:
- There is no business cycle, making baseline analysis almost impossible
- Checks are written to a variety of individuals and vendors not closely related to the church, making it easy to slip one more in the pile
- To protect the confidentiality of recipients, some churches operate separate bank accounts that only one person has the right to see!
35% of our respondents do not follow written guidelines in administering assistance programs.
It is extremely important that the Church establish clear policies on its benevolence activities. Such policies should include but not be limited to:
- what funds will be accepted
- who will administer the funds
- who will receive the funds, and
- for what purposes the funds will be spent.
Best practices also dictate that a documented beneficiary application and approval process be followed when awarding assistance.
Part 6 of our ongoing Fraud in the Church series. PSK in cooperation with the National Association of Church Business Administration (NACBA) conducted a survey to determine the extent to which churches are attempting to address the problem of church fraud. We asked them to respond to this statement:
Our church requires volunteers responsible for special events to submit written financial reports.
The vast majority of churches have implemented adequate control procedures over the Sunday offerings. However, funds that arrive in the church office from Monday through Saturday are a completely different story. These types of revenues typically consist of offerings dropped off by members, fees for various events and food service revenues and special event revenues under the direct supervision of volunteers, such as fundraisers, banquets, and short-term mission trips.
According to our survey, a full third of the respondents have no reporting mechanism for these types of special events. Theft of special events funds by trusted volunteers frequently pop up in the news media. For example, in the city where I live, a prominent public school coach was relieved of his duties when it was learned that he was in the regular habit of skimming from the receipts his team’s annual fund raiser.
To avoid the headlines, at a minimum, churches should require volunteers to account for tickets and/or products sold and fees collected at fundraisers and special events. As a matter of routine the sales report should be reconciled with the total cash generated and deposited into the church bank account.
Any discussion of church tithes and offerings practices usually includes both a pat on the back and a criticism. First, in regard to the normal Sunday offerings I can say to most churches, “Way to go!” In fact, when I ask a client if they have taken any fraud prevention steps, the first thing usually mentioned is how much the church has done to protect the offering plate. Seldom do I encounter a church that does not have multi-member count teams, rotating terms of service, locking bank bags, dual-access safes and in an increasing number, the use of an armored car service. I would venture an educated guess that the majority of churches have more than adequate controls over Sunday receipts. For some, Fort Knox would be an easier target.
But in regard to the rest of the money, the funds that come in during the rest of the week, I often have to say, “What were you thinking?” While being diligent to a fault on Sunday morning, almost anything and everything goes the rest of the week. Here are two in my hall of fame:
- Offerings, fees and other receipts arriving in the mail or dropped off by members are simply dumped on the financial secretary’s desk. I have entered offices with large piles of unguarded cash on the accountant’s desk more times than I can remember.
- Special events funds sometimes are “managed” by a volunteer. The funds are kept off campus and are not turned over to the business office until the event is over. No accounting or reconciliation of goods sold is required.
Needless to say, some of our more interesting and sometimes humorous fraud stories occur in these two areas.
However, this is no laughing matter, because a significant “event” could cause irreparable damage. That being the case, definite steps should be taken.
- First, a brainstorming session could be held, the purpose of which is to determine all sources of income.
- Once identified, all sources should be included in the church’s normal collection policies and procedures. For example,
- For weekday drop-offs and mail-ins, a lock box could be kept in the church’s safe in which all of these receipts would be placed unopened.
- A separate log or register should be maintained to keep a record that the amounts were received.
- On Sunday, the box could then be opened and counted by the teller team on duty.
“We have rotating count teams with clear rules that account for every penny we collect in offerings…”
While this statement is not inaccurate, it is short-sighted. When churches think of fraud, Sunday offering protection is usually the first thing that comes to mind. And as a result, most churches do a very good job in protecting Sunday receipts. In fact, Fort Knox may be an easier target than some churches I have visited who have ratcheted down tightly their Sunday collection procedures!
But, if this is all a church does in protecting itself from fraud, they are at risk. There are at least two significant reasons:
First, Sunday offerings are not the only time cash comes into the church. Many churches with air-tight security over Sunday collections completely ignore what happens from Monday through Saturday. And in many churches, the amounts can be substantial, including day care fees, special event fees such as banquets and conferences, food sales, book sales, fund raising revenues, etc., etc., etc. Also, tithes and offerings that are dropped off during the week often circumvent the entire teller process and instead land directly on the bookkeeper’s desk.
Second, cash inflow is not the only place where embezzlement takes place. In fact, a case can be made that the larger cases do not involve the cash inflow processes, but the outflow. The Association of Certified Fraud Examiners backs this assertion with statistics showing that while skimming (taking money before it is recorded) makes up 20% of reported fraud cases; check tampering is even more prevalent, making up 25% of the cases. In addition, fraudulent expense reports and payroll scams chip in another 29% for good measure.
So, churches with tight controls over Sunday cash receipts should be commended for their efforts, but also reminded that effective fraud prevention includes extending this vigilance to the other means of inflow, and the outflow side as well.
If you’d like to hear more about our Best Practices Review or one of the many other services we provide, please contact us at (817)664-3000 or email us using our contact form.
On September 9, 2010, St. Petersburg Times reported the following story:
Pastor Pleads Guilty in Embezzlement Case
Gregory S, 38, was an accountant for a staffing company when he was not busy preaching from the pulpit. During his employment with the staffing agency, he was able to write checks totaling $813,142 to his church without the staffing company’s or the church’s knowledge. Earlier this month, he pleaded guilty to theft from an employee benefit plan, he managed. The stolen funds received by his church were then used for personal and other expenses.
All churches are protective of the outflow of funds as most frauds occur during this process. However; the same level of attention, if not more, should be paid to the inflow of funds as well.
It appears that his church did not have a formal gift acceptance policy or if it did, the policy was not being followed. A proper gift acceptance policy and adequate contributions procedures, if followed, would have acted as a safety net and would have caught the fraudulent remittances by the retirement plan from being deposited in the church’s bank accounts.
Every ministry should adopt a policy regarding accepting gifts and contributions as not all gifts and contributions are necessarily beneficial to the organization. An effective gift-acceptance policy should be formalized, in writing, and must achieve the following primary objectives:
First, it should identify the types of assets your ministry will accept (e.g., cash, real estate). Next, it should provide guidelines as to the forms of gifts that are acceptable. Finally, it should define your ministry’s role in administering the gifts.
But that’s not enough. To meet the needs of your ministry and to help protect your resources and reputation, your gift acceptance policy should also:
I. State that your ministry will obtain legal input and advice when appropriate.
II. Specify limits your ministry may want to impose, such as maximums or minimums in regards to charitable gift annuities.
III. Detail any restrictions that donors will be permitted to place on gifts.
IV. Outline the responsibilities that donors have with respect to obtaining appraisals for their own tax purposes.
V. Identify the specific circumstances under which your ministry will obtain an independent appraisal.
VI. Outline how your ministry plans to acknowledge gifts.
VII. Note the time frame for communicating with donors.
VIII. Specify the procedures for amending the gift acceptance policy.
The pastor’s scheme would have been caught instantly, had the church communicated with the donor upon receipt of the first check.
To avoid this from happening at your church we have created FACT, a web based test which will identify the cracks in your current system and help you prevent fraud in the future.
Give us a call at (817) 664-3000.
