) or https:// means youve safely connected to the .gov website. Key point. A former Dallas County Sheriffs Office supervisor who embezzled more than $250,000 from the jails inmate property fund was sentenced today to almost three years in federal prison. Four unpleasant surprises when fraud is exposed in a church. Church/Ministry Debit Cards: The most common way a church suffers embezzlement is through the church debit card. They are relying almost entirely on the word of the thief. Church/Ministry Debit Cards: The most common way a church suffers embezzlement is through the church debit card. 2004). Also, consult with legal counsel to be sure the exception is available to you. The theft, misappropriation, or conversion of monies placed in one's trust, or which belong to an employer. A self-described whistleblower, whose December 2019 complaint to the IRS set off a firestorm of debate about how The Church of Jesus Christ of Latter-day Saints stashes and spends tens of. The editors encourage readers to carefully search the site for all content related to the topic of interest and consult qualified local counsel to verify the status of specific statutes, laws, regulations, and precedential court holdings. This presents the minister with a dilemmaeither protect the confidentiality of the confession and refuse to disclose it, or ignore confidentiality and disclose the confession. It was later proven that she was completely innocent. For example, the minister could persuade the church board to hire a CPA to conduct an audit of the church's financial records. It is not to be used in replacement of or as a substitute for a lawyer or CPA. Not necessarily. As an example, a church director who withdraws $20,000 from the churchs checking account and uses it to pay off a personal mortgage probably has committed embezzlement. This does not alter the fact that the crime of embezzlement has occurred. The minister also should attempt to persuade the embezzler to confess to the board. Here is how it happens: 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. While no other court has reached a similar conclusion, this case suggests that church leaders should disclose cases of embezzlement to the church membership only if (1) absolutely necessary (for example, to reduce congregational unrest), and (2) an attorney is involved in making this decision. Tom has counted the church offering at his church for 25 years. Generally speaking, people in positions of authority within a churchits managers, members of its board of directors, and its officersowe the church fiduciary obligations, such as a duty of honesty and loyalty. Your use of any of the information in this website does not create an attorney-client relationship, is not intended as a solicitation. Victims of embezzlement are usually surprised when they discover that they have been defrauded. A trial court dismissed the lawsuit and a state appeals court affirmed the trial courts ruling. And even if the embezzler is prosecuted, this evidence may lessen the punishment. As a result, it is important for church leaders to take this risk seriously. Embezzlement is a crime of trust in which any individual who has lawfully obtained access to any type of property or assets uses said access as a means of stealing, misappropriating, or transferring ownership. 1:00. App. They are trusted individuals with access to church funds, and who for a variety of reasons convert these funds to their own use. 2004). 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. It was later proven that she was completely innocent. 1. In some cases it is not certain that embezzlement has occurred, or that a particular individual is guilty. However, serious problems can occur when the pastor or church board dismisses a long-term employee or volunteer for embezzlement and nothing is disclosed to the membership. However, serious problems can occur when the pastor or church board dismisses a long-term employee or volunteer for embezzlement and nothing is disclosed to the membership. This form is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply. Implement an effective system of internal control. Distribution and use of this material are governed by our Subscriber Agreement and by copyright law. Example. Insurance companies that pay out claims based on such losses are free to sue the persons responsible. It is important to note that insurance policies vary. The qualified privilege does not apply if the communication is made to non-members. Key point. The first and most effective deterrent to embezzlement is a strong system of internal control. Internal control is an accounting term that refers to policies and procedures adopted by an organization to safeguard its assets and promote the accuracy of its financial records. Should the matter be dropped once the embezzler confesses? In many cases they are correct. As if the three consequences summarized above are not enough, embezzlers face an additional consequencethey may be sued by an insurance company that pays a claim based on the embezzlement. Individuals in a church's positions of trust, like directors and officers, can be tempted to steal money or other valuable assets of the church for their own purposes. To do so, there are a few things every pastor should understand about fraud. If the embezzler does not consent to the disclosure of the confession, and refuses to meet with the board, the minister should not disclose the information to any other person. RESPONDING TO ALLEGATIONS OF EMBEZZLEMENT. The embezzler should be informed that the embezzled funds must either be returned within a specified time, or a promissory note must be signed promising to pay back the embezzled funds within a specified period of time. Late one night, a church treasurer arranged a meeting with her priest after informing him that she "had done something almost as bad as murder." It illustrates the seriousness of the crime of embezzlement. That is a violation of the trust of donors and concealment of a serious crime. This information is invaluable to church leaders. Assistant U.S. Attorney Ann Howey prosecuted the case. Organizations like churches can take simple steps to reduce the risk that embezzlement will happen to them: The Church Law Center of California helps churches develop sound risk management practices. Federal law does not require employers to report embezzled funds on an employee's W-2, or on a Form 1099. If the suspected embezzler does not confess, or if embezzlement is suspected but it is not clear who is guilty, church leaders must consider turning the matter over to the police or local prosecutor. Embezzlers believe they will receive better treatment from their own church than from the government. the use of any of the information discussed on this site. This is especially true when the embezzler used the embezzled funds for a noble purpose, such as medical bills for a sick child. The pastor has referred this matter to the appropriate church board as well as governing bodies. The CPA (or CPAs) who conducts the audit will provide the church leadership with a management letter that points out weaknesses and inefficiencies in the churchs accounting and financial procedures. Sometimes ministers learn of embezzlement through a confession by the embezzler in the course of confidential counseling. Embezzlement is a common occurrence in churches because of weak internal controls. Her life was ruined by the allegation, and she had to leave the church. Statements are made with malice if they are made with a knowledge that they are false, or with a reckless disregard as to their truth or falsity. The crime is complete when the funds are converted to one's own usewhether or not there was an intent to pay them back. A court ruled that an insurance company that paid out $26,000 to a charity because of an act of embezzlement could sue the embezzler for the full amount that it paid. Under very limited circumstances, you can request that an employee take a polygraph exam if you suspect the employee of theft and you are conducting an ongoing investigation. As a result, it is important for church leaders to take this risk seriously. Distinctions Between the Terms Pastor, Clergy, Minister, Definition of the Terms Pastor, Clergy, Minister In General, StatusOrdained, Commissioned, or Licensed, Compliance with a Church's Governing Instrument in the Selection of a Minister, Civil Court Review of Clergy Selection Disputesthe General Rule of Non-Intervention, Civil Court Review of Clergy Selection DisputesLimited Exceptions to the General Rule, Civil Court Review of Clergy Termination Disputesthe General Rule of Non-Intervention, Civil Court Review of Clergy Termination DisputesLimited Exceptions to the General Rule, Civil Court Review of Clergy Termination Disputes"Exhaustion" of Ecclesiastical Remedies, Acting in a Professional Capacity as a Spiritual Adviser, The Clergy-Penitent PrivilegeMiscellaneous Issues, Visiting Privileges at Penal Institutions, Immigration of Alien Ministers, Religious Vocations, and Religious Occupations, Liabilities, Limitations, and Restrictions, Pastors Who Are Sued for Making Defamatory Statements, State Regulation of Psychologists and Counselors, Charters, Constitutions, Bylaws, and Resolutions, Public Inspection of Tax-Exemption Applications, Government Inspection of Donor and Membership Lists, Officers, Directors, and TrusteesIn General, Officers, Directors, and TrusteesPersonal Liability, Remedies for Improper Discipline or Dismissal, Church Property DisputesSupreme Court Rulings, Hierarchical Churchesthe Compulsory Deference Rule, Hierarchical ChurchesNeutral Principle of Law, Church Property DisputesDispute Resolution Procedures, The Majority View: Churches May Build in Residential Zones, The Minority View: The Government May Restrict Church Construction in Residential Zones, The Religious Land Use and Institutionalized Persons Act (RLUIPA), Restricting Certain Activities Near Church Property, Reversion of Church Property to the Prior Owner, Religious Discrimination in the Sale or Rental of Church Property, Liability Based on Status as Invitee, Licensee, or Trespasser, Compensating Employees Who Are Receiving Workers Compensation Benefits, Dismissing Employees for Filing a Workers Compensation Claim, Introduction to Federal Employment and Civil Rights LawsThe Commerce Requirement, The Ministerial Exception under State and Federal Employment Laws, Cases Recognizing the Ministerial Exception, Cases Not Recognizing the Ministerial Exception, Procedure for Establishing a Discrimination Claim, Title VII of the Civil Rights Act of 1964, Application to Religious Educational Institutions, Religion as a "Bona Fide Occupational Qualification", Discrimination Based on Religion or Morals, Failure to Accommodate Employees Religious Practices, Employer Retaliation Against Victims of Discrimination, Discrimination Based on Sexual Orientation, Discrimination Based on Use of Legal Substances, The "Religious Service" Exemption to Copyright Infringement, Other Exceptions to Copyright Infringement, Political Activities by Churches and Other Religious Organizations, Negligence as a Basis for LiabilityIn General, Vicarious Liability (Respondeat Superior), Inapplicability to Nonprofit Organizations, Negligent Selection of Church WorkersIn General, Negligent Selection of Church WorkersSexual Misconduct Cases Involving Minor Victims, Court Decisions Recognizing Negligent Selection Claims, Court Decisions Rejecting Negligent Selection Claims, The Relevance of Sexual Orientation in Selecting Youth or Childrens Workers, Negligent Selection of Church WorkersOther Cases, Negligent Retention of Church WorkersIn General, Court Decisions Recognizing Negligent Retention Claims, Court Decisions Rejecting Negligent Retention Claims, Negligent Supervision of Church WorkersIn General, Negligent Supervision of Church WorkersSexual Misconduct Cases Involving Minor Victims, Court Decisions Recognizing Negligent Supervision Claims, Court Decisions Rejecting Negligent Supervision Claims, Negligent Supervision of Church WorkersOther Cases, Court Decisions Recognizing Fiduciary Duty Claims, Court Decisions Rejecting Fiduciary Duty Claims, Court Decisions Recognizing Vicarious Liability, Court Decisions Rejecting Vicarious Liability, The Legal Effect of a Group Exemption Ruling, Risks Associated with the Use of 15-Passenger Vans, Negligent Selection of Church WorkersSexual Misconduct Cases Involving Adult Victims, Negligent Supervision of Church WorkersSexual Misconduct Cases Involving Adult Victims, The Present Meaning of the First Amendment Religion Clauses, Prayer on Public Property other than Schools, Display of Religious Symbols on Public Property, Recurring Use of Public Property by Religious Congregations for Religious Services, Nonrecurring Use of Public Property by Adults for Religious Events and Activities, Use of Public School Property by Students for Religious Purposes. If in doubt, consider hiring a local CPA to review the amount the embezzler claims to have stolen. But is it this simple? Barbara Williams Hatley (treasurer) arrested on . Prepare in advance a written statement that is communicated with members, and that is approved in advance by an attorney. Bio. StartCHURCH, StartCHURCH Cloud, StartRIGHT, StayRIGHT, GetRIGHT, and Ultimate Church Structure are Ministers who disclose confidential information without permission risk being sued for breaching their duty of confidentiality. In these cases the board may decide that the membership must be informed. What procedures has your church adopted to ensure that cash receipts are properly recorded and deposited, and that only those cash disbursements that are properly authorized are made? This case provides church leaders with very helpful guidance in handling suspicions of embezzlement. The board decided that the embezzlement had to be reported to the local police. These purposes may not be served when a church forgives and ignores cases of embezzlement. Such communications cannot be defamatory unless malice is proven. Copyright 2023, StartCHURCH All Rights Reserved. This intent in no way justifies or excuses the crime. Secure .gov websites use HTTPS This case provides church leaders with very helpful guidance in handling suspicions of embezzlement. An oil and gas fraudster was sentenced to more than 17 years in federal prison for running a multi-million dollar Ponzi-type scheme. One can only imagine how many such schemes actually work without anyone knowing about it. The church board has discussed this arrangement several times, but fails to stop it out of a fear of offending Tom. The church discovered Ms. Stabenos fraud in the summer of 2018 and terminated her employment. 4. CONFIDENTIALITY AND PRIVILEGED COMMUNICATIONS. He opened an account in the name of a fictitious company, issued church checks to the company for services that were never performed, and then deposited the checks in the fictitious companys account. They are shocked and repulsed by the suggestion that the embezzlertheir friend and fellow church memberbe turned over to the IRS or the police! 10 Practices That Safeguard Your Church Against Embezzlement. Example. In the church context, this privilege protects statements made by members to other members concerning matters of common interest. Embezzlement is a common occurrence in churches because of weak internal controls. Before forgiving the embezzler and dropping the matter, church leaders should consider the following points: (1) A serious crime has been committed, and the embezzler has breached a sacred trust. What we provide here is not legal advice, may not be current, and could change. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. full Terms of Service. Of course, it may be less likely that a prosecutor will prosecute the case under these circumstances. Share sensitive information only on official, secure websites. Coleman v. State, 947 So.2d 878 (Miss. App. Such cases illustrate an important pointa church employee or volunteer who embezzles church funds may be sued by the church insurance company if it pays out a claim based on the embezzlement. There is no sign above the ministers desk that says, Warning: confessions of criminal activity will be promptly shared with the board or with the civil authorities.286 See Lightman v. Flaum, 687 N.Y.S.2d 562 (Sup. Beginning in 2014, Ms. Stabeno began making payments to herself with church credit cards using Square, a digital point-of-sale payment system which processes payments from credit cards run through a port connected to a cell phone. In a criminal prosecution for embezzlement, a prosecutor must prove that the defendant intended to defraud the victim of money or other assets that were under the defendants care or control as a result of the fiduciary relationship between the defendant and the victim. Lets look at a few cases of actual embezzlement of church funds to see how it can occur. Ministers who violate this expectation need to understand that they face potential legal liability for doing sounless they have the employee's permission, in writing. A locked padlock We are happy to help your church protect itself from embezzlement and other institutional risks. Church leaders often are unsure how to address suspected cases of embezzlement. It will be with the IRS for failure to report taxable income. The point here, as noted by the court, is that one who acquires property with embezzled church funds may be required to transfer the property to the church. Disclosure under these circumstances could result in a lawsuit being brought against the minister and church. These financial supporters make sacrifices to give to their church because it is a basic Christian principle. This intent in no way justifies or excuses the crime. through the necessary steps for establishing a financially healthy church. The embezzler should be informed that failure to agree to either alternative will force the church to issue him or her a 1099 (or a corrected W-2 if the embezzler is an employee) reporting the embezzled funds as taxable income. Nor do they suspect that failure to do so may subject them to criminal tax evasion charges! There is a possible answer to this dilemma. Some of them may come as unpleasant surprises. Her life was ruined by the allegation, and she had to leave the church. Should church leaders join in the outpouring of sympathy? Annual audits. Example. A church bookkeeper embezzled several thousand dollars by issuing checks to a fictitious company. Church leaders under these circumstances often are accused of acting arbitrarily, and there is a demand for an explanation. Also, note that church officials seldom know if all embezzled funds are being returned. He was sentenced to a 2-year prison term, followed by 2 years of probation. 2. The appeals court concluded that the statements made by the church treasurer to the priest were not privileged since they involved a "problem-solving entreaty" by the treasurer rather than "a request to make a true confession seeking forgiveness or absolutionthe very essence of the spiritual relationship privileged under the statute." Depending on the amount of funds or property taken, it may be a felony that can result in a sentence in the state penitentiary. Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy. ROME A Vatican court on Thursday convicted a former senior official at the Vatican bank and his lawyer of embezzlement and money laundering, sending a strong signal that the church was . 6. Fort Worth:817-252-5200 How StartCHURCH Bookkeeping Changed My Church. Further, some people may claim they "reimbursed" themselves out of church funds for unauthorized expenses. Dont act on any information on this website without first speaking to an attorney. These people often are very familiar with sound internal control policies, and will quickly correct weaknesses in the churchs financial operations. 2008). Sadly, many pastors don't even know that they are guilty of committing such a crime, however, some know it very well. Statements are made with malice if they are made with a knowledge that they are false, or with a reckless disregard as to their truth or falsity. Fraud is a very broad term. Felony conviction. Learn how to protect your church's money. The priest, with the permission of the treasurer, sought the assistance of the church board. The point here, as noted by the court, is that one who acquires property with embezzled church funds may be required to transfer the property to the church. Often, this is to prevent the church from turning the case over to the IRS or the police, or to a CPA firm. Dont confuse an audit with a more limited engagement that CPAs will perform, such as a compilation.. An official website of the United States government. (2) Create an internal audit committee if there are accountants or business leaders within the church who have the ability to review accounting procedures and practices and look for weaknesses. The pastor and at least one other church leader should confront the suspected embezzler. These are questions that each church will have to answer for itself, depending on the circumstances of each case. Discrepancies or irregularities may occur which cause church leaders to suspect this person. It is not intended to be legal advice in any way or form. Of course, it may be less likely that a prosecutor will prosecute the case under these circumstances. This case is instructive for church leaders for several reasons, including the following. Church leaders are responsible to God and to their congregation to safeguard the ministry's assets. Be sure that this consent is in writing. The treasurer was later prosecuted for embezzling church funds, and she was convicted and sentenced to 4 months in jail despite the fact that she fully repaid the church prior to her trial. Here are four of them. Here are four of them. Here's a real shockerpersons who receive property purchased by the embezzler with embezzled funds may be required to return the property to the church! 214-659-8707 The CPA firm is completely objective, and ordinarily will not know the suspected embezzler. Be sure that this consent is in writing. Following this meeting the treasurer was shunned by church members who viewed her as guilty. Here are four of them. This case is tragic, since the treasurer had been a long and devoted member of the church. If the individual consents to the communication of the confession to church members, then you can quote from the confession in a letter that is sent to members of the congregation, or in a membership meeting. Church leaders often refuse to disclose to the congregation any information about an incident of embezzlement for fear of being sued for defamation. Tip. The user must first be authorized by the church to use the card. It happens more often than we are willing to admit. In 2015, Ms. Stabeno opened two credit cards, one in her own name and one in her daughters name, which she used for personal expenses. The definition of embezzlement varies slightly from state to state, but in general it refers to the wrongful conversion of property that is lawfully in your possession. Insurance is not a substitute for implementing a sound system of internal control. 3. Richard R. Hammar, Attorney, CPA. The qualified privilege does not apply if the communication is made to non-members. If so, refer to the above discussion on informing the congregation., 11. Some of them may come as unpleasant surprises. Following this meeting the treasurer was shunned by church members who viewed her as guilty. Inform the person that the church has evidence indicating that he or she has embezzled church funds. We use cookies to give you the best browsing experience. If we can be of any further assistance to you, please feel Tip. Cloud-based and date-driven, you have all the curated practical knowledge you need to plant with confidence at the click of a button! Key point. This site is meant to be used as a reference work only, The court also emphasized that the treasurer had released the priest from his assurance of confidentiality by consenting to his disclosure of the facts of the case to the church board members. Example. An embezzlers biggest problem ordinarily will not be with the church or even with the local prosecutor. If so, how? Below is a list of the most common ways that churches and ministries lose funds to embezzlement. Failure to do so will subject the church to a potential penalty (up to $10,000) for aiding and abetting in the substantial understatement of taxable income under section 6701 of the tax code. If the evidence clearly indicates that a particular member or employee has embezzled church funds, but this person denies any wrongdoing, inform him or her that the church may be forced to turn the matter over to the police for investigation and prosecution. Key point. The church should insist, at a minimum, that the embezzler must: Tip. A court agreed with her, and awarded her a substantial verdict. A church can reduce the risk of embezzlement by having an annual audit of its financial records by a CPA firm. Confront the suspected embezzler. Report a State/Church Violation . Key point. Many churches refuse to adopt measures to reduce the risk of embezzlement out of a fear that such measures will reflect a lack of trust in those persons who handle church funds. Amarillo:806-324-2356. The embezzled funds already have been spent. The treasurer was later prosecuted for embezzling church funds, and she was convicted and sentenced to 4 months in jail despite the fact that she fully repaid the church prior to her trial. This concern is understandable. From easy steps to create a budget to correctly receiving tithes and offerings, this ebook will walk you According to court documents, Ms. Stabeno embezzled more than $450,000 from Church on the Rock, a non-denominational religious institution serving more than 3,400 parishioners in Lubbock. Signup for our weekly newsletter to get the latest blogs, updates, and amazing offers delivered directly to your inbox. 287 Miller v. Second Baptist Church, 2004 WL 1161653 (unpublished decision, Cal. Tip. After all, its programs and activities are rooted in religion, and it is funded entirely with donations from persons who rightfully assume that their contributions are being used for religious purposes. Key point. 1999), in which the court observed: It is beyond peradventure that, when one seeks the solace and spiritual advice and guidance of a member of the clergy, whether it be a priest, rabbi or minister, on such sensitive, personal matters as those involved in our case, this is not done as a prelude to an announcement from the pulpit.. The court concluded that the treasurer should have been investigated and dismissed by the board, without informing the congregation. Embezzlers may claim that they confessed their crime to their minister in confidence and in the course of spiritual counseling, with no thought that the minister would disclose the information to others. Key point. Embezzlement sits within asset misappropriation, so it's kind of a subclass of fraud. (4) the employer executes a statement, provided to the examinee before the test, that(A) sets forth with particularity the specific incident or activity being investigated and the basis for testing particular employees, (B) is signed by a person (other than a polygraph examiner) authorized to legally bind the employer, (C) is retained by the employer for at least 3 years, and (D) contains at a minimum(i) an identification of the specific economic loss or injury to the business of the employer, (ii) a statement indicating that the employee had access to the property that is the subject of the investigation, and (iii) a statement describing the basis of the employers reasonable suspicion that the employee was involved in the incident or activity under investigation.288 29 U.S.C.