Typically there are three ingredients that must be present in order for a fraud to take place.  Commonly referred to as the “Fraud Triangle” these three ingredients are:

• Pressure – Forces playing upon individuals in positions of financial responsibility that would make them begin to contemplate doing something they otherwise would have never considered.  Frequent types of pressures are unexpected medical costs, job termination or business reversals of a spouse, addictions and a need to “keep up with the Joneses”.
• Rationalization – The self-talk perpetrators engage in to convince themselves that what they are about to do (or are already doing) is ok.  For example, the number one rationalization is “I’m not stealing; I will pay it all back.”
• Opportunity – The ability to take advantage of a church without getting caught. Sadly, the most common opportunity for fraud in the church environment is the situation where one bookkeeper has total responsibility for and access to the church’s accounting system.

Generally, a church business administrator has significant control over only one of the Triangle’s legs; Opportunity.  Unfortunately, much of the influence of the other two legs, pressure and rationalization, are out of a church’s control; a church has very little influence on outside economic pressures its staff faces.  And, a church has virtually no control over the thought processes of its employees and volunteers.

Key Point – But, there is one thing that can be done – A Church Business Administrator can (and should) become a keen observer of his or her staff and volunteers.

Every two years the Association of Fraud Examiners (ACFE) publishes its Report to the Nations.  In this document, the ACFE summarizes data compiled from fraud incidents reported to it by member Certified Fraud Examiners.  One interesting part of the 2010 report is “Behavioral Red Flags”.  These red flags were compiled by victims of fraud, who on reflection recalled certain behavioral changes on the part of the fraudster.  Unfortunately, if these red flags would have been noticed earlier, the frauds could have been curtailed at a much earlier stage.

In our next series of posts we will share a few of the most common red flags.