Transparency In Ministry

As discussed in post #1 of this series on e-mail fraud...

The IRS is warning taxpayers about Internet scams and fraudulent e-mails that appear to be from the IRS. The e-mails direct the taxpayer to a Web link that looks like the genuine IRS site and requests information about the taxpayer.

The schemes have several variations, including notification that the taxpayer is eligible for a refund, a claim that the taxpayer’s credit card has been used to pay another person’s taxes, and instructions to send money to claim a large lottery winning. None of these schemes has anything to do with the IRS; they are all scams to snare the unwary taxpayer.

If you receive an e-mail claiming to be from the IRS, you should not open any attachments or click on any links in the e-mail. Instead, forward the e-mail to the IRS at phishing@irs.gov so that it can be investigated.

The IRS is warning taxpayers about Internet scams and fraudulent e-mails that appear to be from the IRS. The e-mails direct the taxpayer to a Web link that looks like the genuine IRS site and requests information such as the individual’s social security number and bank account or credit card numbers. This information is then used by the scammers to steal from the victim’s bank account and run up charges on his or her credit card.

What do these scams look like? See post #2 on the fraud series.

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According to the Federal Reserve, debit card use has now surpassed credit card use. Unfortunately, debit card fraud has also grown, reaching $662 million in 2005, a 21% increase from the previous year.

Though debit cards are convenient to use, they put churches/ministries at greater financial risk for two reasons: (1) the cards directly access a church's bank account, so your money can be withdrawn by scam artists, and (2) debit cards don’t provide the same legal protection against fraud that comes with credit cards.

To help protect your Church when using a debit card, heed the following tips:

# - Periodically check the ATM or card-reader for signs of tampering (tape, loose connections, etc.). If you have assigned several ATM's to associate pastors, periodically review those cards for unusual tampering signs.

# -Remind your users to check for hidden cameras before entering your PIN, and shield your fingers on the keypad.

# - Check your bank and credit statements carefully.

If you suspect fraud, close the account immediately.
Remind your staff to not let the card be out of thier sight, especially at gas stations, restaurants, or convenience stores where the card’s data could be copied and used by scam artists.

Report errors, no matter how small, to the financial institution that issued the card.

In the last several fraud postings we have discussed ways that ministries and churches may be vulnerable for fraud. Fraud is defined as an intentional act to misrepresent financial information or misappropriate resources.

Management has a responsibility to set "ethical standards" within the organization. They must establish the "tone at the top" promoting ethical behavior. In post #4 we discussed that management has the opportunity to create a culture of honesty and high ethics.

By creating a positive workplace environment, poor employee moral can be reduced, thus affecting the employee's rationalization for committing fraud.

Hiring and Promoting Appropriate Employees - each employee has a unique set of values and personal code of ethics. When faced with sufficient pressure and a perceived opportunity, some employees will behave dishonestly rather than face the negative consequences of honest behavior. Hiring and promoting appropriate employees who promote ethical values may improve the workplace environment the decreasing the perceived opportunity to commit fraud.

In our final post in this fraud series, we will discuss employee discipline and evaluating controls to detect fraud.

·Discipline
The way an entity reacts to incidents of alleged or suspected fraud will send a strong deterrent message throughout the entity, helping to reduce the number of future occurrences. The following actions should be taken in response to an alleged incident of fraud:

• A thorough investigation of the incident should be conducted.

• Appropriate and consistent actions should be taken against violators.

• Relevant controls should be assessed and improved.

• Communication and training should occur to reinforce the entity's values, code of conduct, and expectations.

·Evaluating Antifraud Processes and Controls
Neither fraudulent financial reporting nor misappropriation of assets can occur without a perceived opportunity to commit and conceal the act. Organizations should be proactive in reducing fraud opportunities by (1) identifying and measuring fraud risks, (2) taking steps to mitigate identified risks, and (3) implementing and monitoring appropriate preventive and detective internal controls and other deterrent measures.

It must be stated if a group of people are working together to perform the fraud it makes it very hard to detect the act in a timely manner, but it will be exposed, for what is done in the dark will be exposed to the light.

If you have additional questions, please do not hesitate to contact us.

How can a church or ministry protect resources against fraud? One of the most important facets of fraud prevention is hiring and promoting appropriate employees. Each employee has a unique set of values and personal code of ethics. When faced with sufficient pressure and a perceived opportunity, some employees will behave dishonestly rather than face the negative consequences of honest behavior. However, the threshold at which dishonest behavior starts varies among individuals.

Proactive hiring and promotion procedures may include:

*Conducting background investigations on individuals being considered for employment or for promotion to a position of trust

*Thoroughly checking a candidate's education, employment history, and personal references

*Periodic training of all employees about the entity's values and code of conduct (training is addressed in the following section)

*Incorporating regular performance reviews and evaluations, how each individual has contributed to create an appropriate workplace environment in line with the entity's values and code of conduct

*Continuously evaluating an individual's compliance with the organization's values and code of conduct, and addressing violations immediately

Training

New employees should have formal training at the time of hiring about the entity's values and its code of conduct. This training should explicitly cover expectations of all employees regarding:

*Their duty to communicate certain matters

*A list of the types of matters, including actual or suspected fraud, communicated along with specific examples

*information on how to communicate those matters.

There should also be an affirmation from senior management regarding employee expectations and communication responsibilities. Such training should include an element of "fraud awareness," the tone of which should be positive but nonetheless stress that fraud can be costly (and detrimental in other ways) to the entity and its employees.

Confirmation

Management needs to clearly articulate that all employees will be held accountable to act within the entity's code of conduct. All employees within senior management and the finance function, we well as other employees in areas the might be exposed to unethical behavior (for example, procurement, sales and marketing) should be required to sign a code of conduct statement annually, at a minimum. Requiring periodic confirmation by employees of their responsibilities will not only reinforce the policy but may also deter individuals from committing fraud and other violations and might identify problems before they can become significant.

In post #7, we will discuss ways to discipline behavior and evaluate controls.

Understanding that management has a responsibility to prevent/detect fraud is hard for all types of entities, not just churches and ministries. One aspect of enhancing a value system within an organization is creating an office culture of honesty by creating a positive workplace environment.

Research indicates that wrongdoing occurs less frequently when employees have positive feelings about an entity than when they feel abused, threatened, or ignored. Without a positive workplace environment, there are more opportunities for poor employee morale, which can affect an employee's attitude about committing fraud against an entity. Factors that detract from a positive work environment and may increase the risk of fraud include:

*Top management that does not seem to care about or reward appropriate behavior

*Negative feedback and lack of recognition for job performance

*Perceived inequities in the organization

*Autocratic rather than participative management

*Low organizational loyalty or feelings of ownership

*Unreasonable budget expectations or other financial targets

*Fear of delivering "bad news" to supervisors and/or management

*Less-than-competitive compensation

*Poor training and promotion opportunities

*Lack of clear organizational responsibilities

*Poor communication practices or methods within the organization

The entity's human resources department often is instrumental in helping build a corporate culture and a positive work environment. Human resource professionals are responsible for implementing specific programs and initiatives consistent with management's strategies that can help to mitigate many of the detractors mentioned above.

Mitigating factors that help create a positive work environment and reduce the risk of fraud may include:

*Recognition and reward systems that are in tandem with goals and results

*Equal employment opportunities

*Team-oriented, collaborative decision-making policies

*Professionally administered compensation programs

*Professionally administered training programs and an organizational priority of career development.

Hiring and promoting appropriate employees goes a long way in detering fraud, see post #6 of this series on fraud.

The first step to prevent fraud is to ensure that controls are in place. These controls may be as simple as having background checks performed on people working with the financial department of the organization.

The following are some examples of preventative controls, but they are not all-inclusive.

* Creating a Culture of Honesty and High Ethics
It is the organization's responsibility to create a culture of honesty and high ethics and to communicate clearly acceptable behavior and expectations of each employee. Such a culture is rooted in a strong set of core values (or value system) that provides the foundation for employees to know how the organization conducts its business ethically.

*Setting the Tone at the Top
Board of Directors, officers, pastors and leaders of an organization set the "Tone at the Top" for ethical behavior within their organization. Research in moral development strongly suggests that honesty can best be reinforced when a proper example is set--sometimes referred to as the "Tone at the Top." The management of an entity cannot act one way and expect others in the entity to behave differently.

Management must show employees through its words and actions that dishonest and unethical behavior will not be tolerated, even if the result of the action benefits the entity. Moreover, it should be evident that all employees will be treated equally, regardless of their position.

For example, statements by management regarding the absolute need to meet operating and financial targets can create undue pressures that may lead employees to commit fraud to achieve them. Setting unachievable goals for employees can give them two unattractive choices: fail or cheat.

So how can management create a positive workplace environment? Tune in to Post#5.

This is a 3rd part posting of understanding fraud and the implications on the organization. In part 1, we discussed that churches, just like any organization, is susceptible to fraud. In an April 23, 2001 article by Christianity Today headlined "Jury Convicts Greater Ministries of Fraud," five leaders were convicted in Federal Court on 72 counts of conspiracy, wire and mail fraud, and money laundering, in one of the largest church fraud schemes in American history.

Is your organization's environment ripe for fraud?

First, if management or other employees have an incentive or are under pressure, this provides a reason to commit fraud.

Second, do circumstances exist -- for example, the absence of/or ineffective accounting controls, or the ability of management to override controls -- that provide an opportunity for a fraud to be perpetrated?