Internal Controls Cost Too Much Money

Said no one that has ever been the victim of fraud!

First, let’s lay out what is at stake here…

In a recent article from Brotherhood Mutual, 

Increasing at an annual rate of more than six percent, researchers expect worldwide church financial fraud to reach the $80 billion mark by 2025. That’s still not the whole picture. Most cases of church fraud go unreported and therefore are not included in statistics. …According to the current Status of Global Christianity report from the Center for the Study of Global Christianity, Christian organizations worldwide were expected to experience more than $68 billion in financial fraud by mid-2019. 

Church Fraud Exceeds What Churches Give to Missions

In the nonprofit sector,

The Key Worldwide Foundation put on a good show.  … It presented a picture of fiscal strength, having raised more than $7 million since its founding and more than $2 million in assets. But we now know it was a charade, using the aura of a nonprofit organization as a cover for illegality and personal gain, rather than help low-income students. Just to give a couple examples, one parent committed a $1.9M fraud, while another $525K.

Hiding in Plain Sight: A Nonprofit Fraud Story

You can find horror stories like these all day long on the internet. If you are involved with your church or nonprofit organization in any financial capacity, the first myth to overcome is “it won’t happen to our organization.” The second myth to overcome is that “internal controls cost too much money.”

Once you overcome those two things, it’s important to understand that good internal controls are the first line of defense against fraud. 

Most internal controls can be implemented without spending any additional money

If your accounting department has two or more people,  you are already way ahead of the game. Take a close look at the duties of each staff personal and mix it up a bit. Make sure that the person responsible for custody of assets, such as cash, checks, etc. is not also responsible for recording transactions related to those assets. It’s easy enough to segregate critical financial duties between your staff with nothing more than a bit of cross training. 

If you have a 1-person accounting department, consider using someone from another department to help segregate key duties. Again, a little cross training will go a long way in helping protect your organization’s assets, and won’t cost you much, except perhaps the time spent training. 

Sometimes you may have to spend some money to enhance internal controls but it’s worth it

Let’s say you are part of a small church or nonprofit with only one accountant and there is no one to split or share duties with. Here are a couple options to consider…

  • Little or no cost – bring in volunteers to assist with accounting functions or handling cash donations, obviously with the proper supervision.
  • Low cost – enter into an agreement with another similar organization in your area to share staff and segregate duties. If both organizations benefit, this could still be a no cost option.
  • Mid range cost – consider outsourcing to fill key accounting positions. This can be done at a fraction of the cost of hiring. See Benefits of an Outsourced Accounting Department.
  • Highest cost – hiring another part-time or full-time staff person.

In any case something to consider is that even a small fraud or theft can cost your organization tens of thousands of dollars and an unmeasurable loss of reputation.

Remember, it can happen to you.

To Your Success,

Bob Swetz

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One thought on “Internal Controls Cost Too Much Money

  1. Tim Stephenson

    Another key point for churches to consider: we’re supposed to help our flock AVOID temptation, but weak or nonexistent internal controls ADDS to their temptation. Imagine a person is counting cash by himself, and his wife needs meds he can’t afford. This guy now has a real tough decision to make. If another church member is counting with him, the temptation is reduced to the point that the decision is easy. Or the thought of taking some of the cash never occurs.

    That’s a pretty bad example. But you can see how it might work it’s way into everything the church does (credit card use, check writing, money in accounts, petty cash, you name it).

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