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Building a Better Auditor: When Faith Meets Fraud

Blogs ​​Christopher Kelly, DProf, FCA​, PFIIA Jan 18, 2022

​Houses of worship are not immune to fraud.

Within churches, temples, and mosques, there is an opportunity for internal auditors to introduce the basic elements of corporate governance.

As a regular churchgoer and former altar boy, church auditor, and treasurer, I value the pastoral benefits provided by churches to those in need — usually on a charitable basis at no cost. From enduring friendships between church members, to a free lottery ticket to possible eternal life, society provides few deals in life better than church. 

But, sadly, the anecdotal 3% of the population who are intent on personal gain through dishonest behavior applies as much to the church sector as it does in business, charities, sports organizations, the public sector, and politics. A 3% corruption rate sounds about right, as the prison population in the United States and elsewhere is typically less than 1%, corruption being marginally less custodial than outright criminality. However, it only takes one corrupt person in a position of trust over several years to bring about outsized devastation to the victim organization. 

Church corruption is not new. Among Jesus and his twelve disciples, one of them, Judas Iscariot, was a known thief who was also willing to trade his friend's life for thirty pieces of silver. Since Martin Luther drew attention to it, the world has been alerted to misbehavior by a minority of church leaders from antiquity to the present day, including monetary indulgences, inquisition and persecution of innocent people, abuse of children, many of whom were orphans in the church's care, and cover-ups at the highest levels of church leadership. 

The pervasiveness of corruption across the spectrum of human organization suggests human self-interest is the common root cause. Which brings us back to the 3%.  

When I took over as auditor at my local church, I found the treasurer was pocketing the weekly collections and later banking an amount he affirmed approximated the actual money collected — but with no records to show otherwise. This vulnerable banking practice was unknown to the church flock, who assumed every penny collected on Sunday found its way into the bank account on Monday morning. There were no financial policies, no transparent income and expenditure reports, and the auditor who preceded me had no bookkeeping experience.  

Nor is cash fraud the only financial vulnerability. In churches, there are abundant opportunities for related-party transactions, kickbacks, cover-ups and unseemly influence over elderly member bequests.  

While these risks remain unchecked, church financial governance may be no more than the blind leading the blind due to a reliance on volunteer labor, an inherent culture of trust, and the financial naivety, or sometimes cunning, of those in charge. This is why Jerry Ipsen and I penned the short story, "The Keeper of the Money Bag," in the December 2021 issue of Internal Auditor, based on our experiences of church fraud.  

As explained in that short story, worldwide church, temple, mosque, and synagogue collections across the globe approximate $10 billion per year due to member generosity and frequent large deceased estate bequests. A visit to the magnificent cathedrals of Europe, or the Vatican itself, exhibits the vast wealth channeled by the faithful into religious organizations. This is precisely why church governance needs airtime in the internal audit community. While it would be unthinkable that a large private or public sector organization would not have internal and external auditors, both are often absent in the church sector. 

Though it may seem distasteful to raise questions of impropriety in a church context, there is an opportunity for internal auditors, acting as employees, consultants, or volunteers, to introduce the basic elements of corporate governance — policies, reconciliations, checks, segregation of duties, oversight, transparency — to stop the 3% who exploit trust for personal gain. Churches make a positive contribution to society, but it is the material damage by the corrupt 3% that should concern us.  

The continuing discoveries of church malpractice today suggest leaders have too often adopted Pontius Pilate's approach and washed their hands of their governance responsibilities.  

Christopher C. Kelly, a long-term contributor to Internal Auditor, won the 2020 John B. Thurston prize for his article on data analytics. He runs global internal audit consulting firm Kelly & Yang.

​​Christopher Kelly, DProf, FCA​, PFIIA

​​Christopher Kelly is a partner at internal audit consulting firm Kelly & Yang in Melbourne, Australia.