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Fraud Thriving In U.S. Churches, But You Wouldn't Know It

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The Washington Post's investigation on fraud into nonprofit organizations revealed that incidents are either not reported at all or reported but not directed to authorities ... bad news, like "theft," does not sit well with contributors. When I looked at the list of nonprofit organizations in the Post's story, I did not see any churches on it so I called my good friend Alton Sizemore of Forensic Strategic Solutions, Inc. in Birmingham, AL to see why he thought that was the case. Sizemore told me, "The reason you did not see any churches on the list is because churches are not required to do an annual report."  What?!"

Sizemore pointed me to a line in the tax code:

"Every organization exempt from federal income tax under IRS 501(a) must file an annual information return except: 1) A church .... "

"In Alabama," Sizemore said, "fraud within churches is a major problem."  With so little reporting and transparency, one can see why.

The problem goes beyond churches in the middle of the Bible Belt in Alabama.  There were three separate cases of Catholic priests in Connecticut who got prison time for drug trafficking, obstruction of justice and embezzlement. However, even when these types of frauds are reported, there are pressures to keep them private. Take the case of Catholic priest Rev. Michael Jude Fay who pled guilty to stealing $1.3 million from congregation collections in Darien, CT.  According to a New York Times article, a bookkeeper and an assistant pastor at St. John's Church discovered the theft and showed their findings to the Catholic Diocese of Bridgeport but nothing happened.  The two then took matters into their own hands, hired a private investigator and took their case to authorities. While Fay would go on to be sentenced to 37 months in prison, the duo that reported the fraud quit their jobs at the church under pressure from diocese officials for alerting outsiders to the problems.  Fay, who had advanced prostate cancer at the time of his sentencing in December 2007, died in prison.

Gordon Conwell Theological Seminary in Hamilton, MA has conducted research on all aspects of finance related to Christian churches around the world through its Center For The Study Of Global Christianity.  The Director of the center, Todd M. Johnson, PhD, said "there is a lack of research on fraud within the church," but that is something he has been trying to change. Johnson teamed with David B. Barrett to write a book World Christian Trends, which represented a statistical view of the Christian churches of the world.  Barrett, who passed away in 2011, was a pioneer in collecting data on churches and noticed a significant increase in embezzlement fraud during the 1980's.  In one of Johnson's recent studies, Status of Global Mission 2013, there is a line item for "Ecclesiastical Crime," which is projected to be $37 billion worldwide, or nearly 6% of the total $594 billion given to churches.  Losses due to mismanagement of funds is also a line item totaling $8 billion.  In contrast, the total spent on mission work to introduce Christianity to more people throughout the world is $32 billion.

"Much of the fraud goes unreported," Johnson said. "Barrett worked with accounting fraud experts on his initial study who estimated that as much as 95% of fraud within churches goes undetected or unreported."  Similar studies of corporate fraud have determined that upwards of 66% of frauds go unreported.  But why not report it?  Johnson told me that "part of it is a reluctance to see the bad side of a nice pastor, a secretary or a board member of the church." Johnson even cited one quote from a church member who knew of an embezzlement and said, "I know he stole my money but I still think he's a wonderful person."

Seminaries like Gordon Conwell have incorporated ethics training into their curriculum as a common sense approach to combat fraud in the church. "Simple lessons about two signatures on a check can avert many problems," Johnson said.  However, small churches that have spun-off from other congregations or are just starting from scratch are a growing part of the Christian church ...  and the funds they receive can also grow quickly.  "A number of these churches get big fast, and their message can send mixed signals," according to Johnson. "Prosperity Gospel," a theological message that implies that God wants you to be rich, has taken root. "A church can raise a lot of money when parishioners are encouraged to give more for their own good," Johnson said.

Back in Alabama, Alton Sizemore, who is now a forensic accountant after a 25 year career with the Federal Bureau of Investigation, was asked to participate in a presentation for church leadership in the Shelby County area.  The local sheriff's department, the federal government's Alcohol Tobacco & Firearms and Sizemore presented on issues facing churches including lone gunman scenarios, theft protection and procedures for handling cash donations.  Over 60 church leaders attended and when it came time for questions, only one topic was brought up by the attendees: concern over the lone gunman.  The audience had been assured that the chances of such a tragedy playing out would be "remarkably slim, but better to be prepared." The pastors showed more concern over the unlikely scenario of gun violence over the high likelihood of fraud within their own churches.

"Nobody wants to believe that the person they trust, the person they respect, is stealing from them," said Sizemore. "But that is exactly what I'm seeing in our practice."  Each year, Forensic Strategic Solutions receives 3-4 cases of a church or nonprofit that has discovered or suspects fraud.  Typically, when they investigate, they find few if any accounting controls and most financial procedures in place are based on "trust."

Regarding the church leadership at the conference, Sizemore put it this way: "These churches trust that fraud won't happen to them and when it does, they tend to forgive and just move on."

From the looks of it, fraud does happen to churches and there are plenty of facts that prove it. There's even a website dedicated to writing about fraud in religious institutions.  We just need the courage to face it and then do something more to prevent it  ... other than saying a prayer.

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