The annual audit is the most effective way to prevent fraud for a church. Why is that? Because you know that someone will be watching. People tend to behave better when they know that they are being watched and judged. This is called accountability and it
Think about people who steal from Walmart. There are some people that walk into Walmart looking to steal. There are some people that go the self-checkout, feel like they are already paying too much for what they are buying, so they feel justified to not scan an item or two. Would these same people steal if they went to a cashier to checkout or if they knew their purchase would be matched to their receipt? Likely they would not steal because they know someone will be watching.
If your audit is going to be successful at preventing fraud, here are the things that should be done at a minimum (this is covered in the video and the linked Audit Report):
- Talk to the Money People: Interview the folks responsible for the offering and the person responsible for cutting checks. Also, interview the pastor. This does two things. First, you learn how things are supposed to happen. Second, it lets them know someone is watching. These three positions are the ones I’ve most often seen steal from the church.
- Ask for the Minutes: These should be the minutes from the Finance Committee and the Church Board. That way you could see what financial decisions or policies were approved. It’s also a good reminder that these the authority over financial matters ultimately lies with the committees and not certain positions.
- Review Financial Reports: I’ve served on Finance Committees for over 20 years. It is easy to just receive the financial reports each month without ever looking at them critically and asking, “Do the numbers make sense?” Most often, theft is just recorded as an expense, and no one questions why some expenses are so high.
- Sample Transactions: I normally recommend that an audit committee pick two months on random and look at all the income and expenses for those months. I also like to get all the bank statements for the year. That mean you should get all the counter sheets for the offerings for two months and be able to match those up with the deposits. You should get all the support (and maybe the check stubs too) for a month and see if anything looks odd.
In a previous post, I tried to go through the whole audit process. you can find a link to that post below.
Useful Links
- Audit Report (PDF): https://jctaccounting.com/wp-content/uploads/2024/02/Audit_Report.pdf
- Audit Report (Word): https://jctaccounting.com/wp-content/uploads/2024/02/Audit_Report.docx
- Audit Checklist (PDF): https://jctaccounting.com/wp-content/uploads/2024/02/Audit_checklist.pdf
- Audit Checklist (Excel): https://jctaccounting.com/wp-content/uploads/2024/02/Audit_Checklist.xlsx
- Post on the Church Audit: https://jctaccounting.com/2021/01/15/finance-the-audit/