Convenience – the Enemy of Financial Controls in a Church or Ministry
Mark Helland, C.P.A.

Mark Helland, CPA is a partner with the public accounting firm of Elliott, Dozier and Helland, PC which is located in Tulsa, Oklahoma. Mark specializes in audit and tax related issues for church and ministry clients across the United States. For further assistance from Mark on this topic or for assistance on any other tax, accounting or church audit and compliance need, Mark can be contacted via email at mark@edandhcpa.com or by phone at (888) 893-1259 or (918) 488-0880.

For most church and ministry organizations, maintaining strong internal controls over the finance and accounting function is a difficult task. Clearly, a church or ministry’s main focus is the preaching and teaching of God’s Word and the finance and accounting function, while important, is often a secondary consideration. Additionally, in today’s modern world the virtues of convenience and speed of response are highly emphasized, often to the detriment of policies and procedures. While efficiency, convenience and responsiveness are admirable, ignoring or circumventing organizational internal controls can result in some very negative outcomes. As I have discussed in previous articles on internal controls, the current weak state of the U.S. economy has caused financial fraud to be rampant and churches and ministries are certainly not exempt from fraud schemes. Church and ministry organizations must continue to take proactive steps to protect themselves and establish strong internal control structures.

In our audit work with churches and ministries, we have noticed that many organizations allow certain practices, despite policies and procedures to the contrary, that provide an “open door” for fraud to occur. Even organizations with solid controls in place should be careful not to let these structures be weakened by some well known practices. Following are three common practices to consider eliminating or modifying significantly in your church or ministry.

Eliminate Rush Checks
A “rush check” can officially be defined as an immediate request for payment of an item that was unexpected and/or a request that did not follow the official chain or command process for approval. While they might seem innocuous, rush checks are a horrible practice to allow on a consistent basis. Rush checks essentially circumvent the internal control process for full and complete approval of the item and they are a breeding ground for fraud. Often the accompanying backup documentation for the expenditure is missing and the ability to determine if the expense is even valid is compromised. As such, rush checks interrupt the accounts payable function and can result in duplicated payments to vendors, errors in the accounts payable aging schedule and rush checks sent by overnight delivery are also more expensive. Here are some ways to put a serious dent in the number of rush checks issued by your church or ministry:

• Make it very difficult to get a rush check. This may include requiring a dual signature from a board member or the senior pastor, etc. An explanation should also be required as to why this check could not wait for the normal payment cycle.
• Keep a record of the organizations or individuals within your own organization who request rush checks. After logging these activities for several months you may be able to identify trends and you may be able to change behaviors.
• Communicate to those within your organization that rush checks are prohibited and explain the new processes to them.

Clamp Down on Petty Cash
Access to petty cash is one of the easiest ways to provide an employee the opportunity to commit fraud. This opportunity is further multiplied when an organization has multiple departments with petty cash accounts and when larger dollar value limits have been allowed. The term “petty cash” implies that this is an area that is insignificant, which usually results in little attention being paid to it by management. All of these factors result in an area that is easily manipulated by the fraudster. The reality is that petty cash accounts are frequently not necessary at all for most departments within an organization and are similar to rush checks in that they allow employees to circumvent the approval process of expenditures. Bottom line, unless there is a compelling reason to keep petty cash accounts, eliminate them and force as many purchases as possible to go through the formal approval process. If you absolutely must have petty cash accounts, by all means require a full and exact accounting of the expenditures before replenishing the account. Finally, make it clear to petty cash custodians that the absence of documentation for the accounting of expenditures could result in dismissal.

Restrict the Use of Credit Cards or Gas Cards
Many organizations allow certain employees to carry credit cards, especially those who travel frequently. While credit cards are an essential tool for certain situations like booking air travel or hotel rooms and paying for meals and incidentals for trips out of town, they can also easily be abused. For example, in our audit practice, I have noted many situations where an employee incurs credit card charges for hundreds of dollars at the Apple store or Best Buy, etc. for equipment purchases without obtaining pre-approval. I know I sound like a broken record, but again, credit cards effectively circumvent the accounts payable approval process for expenditures and also the budget process. If your organization must issue credit cards to employees, here are some best practices to implement:

• Restrict the access to credit cards to only a few key employees. Issuing credit cards to multiple employees is a recipe for disaster.
• Keep the credit limit on employee issued credit cards as low as possible from an operational standpoint.
• Have a credit card usage policy that is clearly communicated to employees. Equipment should not be purchased by employees on credit cards and should go through the formal approval process. Let employees know that they must provide receipts for all purchases made, and expenditures deemed to be non-essential will be required to be repaid.

As noted in the title, convenience is the enemy of an effective internal control structure. While policies and procedures need to allow for a degree of flexibility, make sure that your organization isn’t being too flexible, thus opening the door for fraud to be committed more easily.

Mark Helland, CPA is a partner with the public accounting firm of Elliott, Dozier and Helland, PC which is located in Tulsa, Oklahoma. Mark specializes in audit and tax related issues for church and ministry clients across the United States. For further assistance from Mark on this topic or for assistance on any other tax, accounting or church audit and compliance need, Mark can be contacted via email at mark@edandhcpa.com or by phone at (918) 488-0880.

 

This article is designed to provide accurate and authoritative information in regard to the subject matter covered. It is shared with the understanding that neither the author nor Tony Cooke Ministries is engaged in rendering legal, accounting, psychological, medical or other professional services. Laws and regulations are continually changing, and can vary according to location and time. No representation is made that the information herein is applicable for all locations and times. If legal advice or other expert assistance is required, the services of a competent professional person should be sought.

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