Embezzlement In the Church!

Did you know that the most common crime committed in the church is embezzlement? It happens more often than we are willing to admit. When we think of embezzlement, we often think of a sneaky treasurer or deacon taking money from the offering plate.  Surprisingly, this is not how it typically happens.  Below is a list of the most common ways that churches and ministries lose funds to embezzlement.

Church/Ministry Debit Cards: The most common way a church suffers embezzlement is through the church debit card.  Some pastors commit this fraud by using the church debit card to pay for gas, meals and other personal bills, such as groceries.  Sadly, many pastors don't even know that they are guilty of committing such a crime, however, some know it very well.  Here is how it happens:

  • The pastor uses the church debit card to fill his/her car with gas and also buys a snack while at it.  Most churches allow the pastor to do this because he or she uses the car mostly for church business.  The problem is when there are no policies in place to make the use of the church debit card accountable or reportable.  Both the gas and the snacks are forms of embezzlement that could lead to prison ministry, as well as stiff fines under sections 6671 (attempt to evade or defeat tax) and 4958 (200% penalty).  
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    Under current legislation, there are several sections of code and regulations that apply to the use of church debit cards.  Income Tax Regulation 1.501 states that the church has to be managed in a way that does not allow the church any private inurement.  This means that the church must adopt a debit card use policy in order to preserve their tax exempt status.  If the pastor, founder or board member improperly uses the church debit card without a debit card use policy, the IRS can audit the church under the rules of section 7611 and revoke the tax exempt status of the church. 
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    Church debit cards are used to pay for many personal items which can make their use an act of embezzlement.  Below are some examples:

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    1.  Pastor or staff member uses the church debit card to buy lunch while away from the office without a per diem rule or accountable reimbursement plan.

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    2. 
    Pastor or staff member uses the church debit card to pay a cell phone bill.

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    Pastor or staff member uses the church debit card to buy personal items such as suits for the preacher to wear on Sundays, Bibles, etc.

Establish a Church Debit Card Use Policy!

It is of absolute importance that the church establish a debit card use policy; one that details the ways in which the card may be used by authorized persons.  In essence, the policy must contain the following procedures:

  1. The user must first be authorized by the church to use the card.
  2. A user must surrender each receipt to the church with a written description of the transaction and how it was used for church business.
  3. A maximum amount per transaction.  Any transaction above the set amount requires further authorization.

Church Tax Compliance Conference!

In our next conference we will spend a significant amount of time discussing this topic, plus we will show you how to properly set up a debit card use policy.  We will teach you how to form a policy that creates protection for the church while giving enough freedom to the pastor and board members to use the debit card effectively.