Study: the church, money & embezzlement

NASHVILLE (BP) -- With churches and other faith groups collecting tens of billions of donations each year, some of the money unfortunately goes missing.

About 1 in 10 Protestant churches has had someone embezzle funds, according to a survey released today (Aug. 3) of 1,000 Protestant senior pastors from LifeWay Research. The group conducted the survey Aug. 22–Sept. 16, 2016.

That figure isn't surprising, said Scott McConnell, executive director of LifeWay Research. Most churches rely on volunteers to handle their finances, he said.

Those volunteers are usually honest. But churches often lack systems to catch those who aren't. As a result, he said, money that could have been used for ministry goes missing.

"Churches run on trust -- but they also know people are imperfect and can be tempted," McConnell said. "That's why safeguarding a church's finances is an important part of ministry."

Overall, 9 percent of pastors say that their church has had funds embezzled. Ninety-one percent say they are not aware of any embezzlement.

Churches of Christ ministers are more likely to say their church had funds embezzled (16 percent) when compared to Baptist (7 percent) or Presbyterian/Reformed pastors (6 percent).

Pastors of mid-sized churches -- those with between 100 and 249 members -- are less likely to say funds had been embezzled (6 percent) than those with 250 or more members (12 percent).

LifeWay Research's survey echoes a smaller 2012 study published in Fraud Magazine of churches in Kansas and Missouri, which found 13.4 percent of churches there had experienced embezzlement or other fraud.

A study of more than 2,400 fraud cases at businesses and nonprofits by the Association of Certified Fraud Examiners found 2.4 percent of cases involved churches or other charitable groups. The average loss was $82,000.

Church audits fairly common

As part of the LifeWay Research study, researchers also asked pastors when their church's financial books were last audited and how much cash they had in reserves.

Half (47 percent) of pastors say their church has had a complete audit in the last year. Two-thirds (66 percent) say their church's books have been audited within the last four years.

About a third of pastors (34 percent) say the most recent audit was more than five years ago (10 percent), their books haven't been audited ever (10 percent) or they don't know when their church last had an audit (14 percent).

Among other findings:

-- Methodist pastors are most likely (74 percent) to say their church had a complete audit within the last year.

-- Baptist (17 percent) and Pentecostal (18 percent) pastors are more likely to say their church had a complete audit more than five years ago. Lutheran (3 percent), Methodist (4 percent) and Holiness pastors (4 percent) are less likely.

-- Church of Christ (16 percent) and Pentecostal pastors (17 percent) are more likely than pastors of other denominations to say their church has never been audited. Lutheran (5 percent), Methodist (2 percent) and Presbyterian/Reformed pastors (7 percent) are less likely to say the same.

-- African-American pastors (25 percent) are the most likely ethnic group to say their church has never had an audit.

Most churches realize that having an audit can be good thing, McConnell noted. It's another aspect of being a good steward of a church's finances.

"It's helpful to have a second set of eyes look at the church books," he said.

Rainy day funds

LifeWay Research found that a number of churches function with little margin for error when it comes to their finances.

One in 4 (26 percent) has operating reserves to cover seven or fewer weeks, according to their pastors. A similar number (24 percent) have between eight and 15 weeks. Fifteen percent have between 16 and 25 weeks of reserves, while 12 percent have between 26 and 51 weeks. Twenty-three percent have a year or more.

Smaller churches often have more weeks of reserves than larger congregations.

Among small churches -- those with fewer than 50 people -- 27 percent say they have a year of cash reserves. By contrast, 15 percent of larger churches -- those with more than 250 people -- have a year of reserves.

An earlier study by LifeWay Research found about a third of churches have struggled to make their budget, McConnell said. So it's not surprising that some churches have few reserves.

"It takes a lot of faith to run a church, especially when finances are tight," he said. "But some churches may be missing out on ministry, because there's not enough money in the bank to respond to needs and opportunities that arise."

Methodology

The phone survey of Protestant pastors was conducted Aug. 22–Sept. 16, 2016. The calling list was a stratified random sample, drawn from a list of all Protestant churches. Quotas were used for church size. Each interview was conducted with the senior pastor, minister or priest of the church called. Responses were weighted by region to more accurately reflect the population. The completed sample is 1,000 surveys. The sample provides 95 percent confidence that the sampling error does not exceed plus or minus 3.2 percent. Margins of error are higher in subgroups.

LifeWay Research is a Nashville-based, evangelical research firm that specializes in surveys about faith in culture and matters that affect churches.

Bob Smietana is senior writer for Facts & Trends.
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