Embezzlement: The Secret Hidden in God’s House
Each year billions of dollars are dropped in wicker baskets attached to poles, placed in shining metal plates, plopped into poor boxes attached to door post, or simply deducted from checking accounts. All of this money is cheerfully given by members of churches, synagogues and mosques spread out across America. In small towns and ever sprawling cities, these givers expect that their money is being used to support their House of Worship, propagate the faith, feed the hungry, clothe the poor, take care of the sick and infirmed, and do those things that will ultimately give us a better society.
Each year millions of these donated dollars are used to support drug habits, pay gambling debts, buy the services of prostitutes and illicit lovers, and pay for the lavish lifestyles of those charged with the custodial care of this money, many of them clergy.
Every faith has direct prohibitions against stealing. Yet, it appears that embezzlement of funds from Houses of Worship is both universal and widespread. The root cause of embezzlement can be found in greed and poor judgment common to us all. The fact that one is a member of the clergy, a church secretary or a member of respected committee charged with management of funds, does not make one immune from temptation. Embezzlers, even of Church or House of Worship funds, at their core are opportunists. Either they believe that they can repay the monies they steal prior to their deed being discovered, or they honestly believe that they are so clever that they will never be discovered.
A recent study by two researchers from Villanova University, Bob West and Chuck Zech entitled “Internal Financial Controls in the Catholic Church” found that 85 percent of the dioceses in the United States reported instances of embezzlement within the last five years. The report was conducted by sending a survey to chief financial officers in the nation’s 174 Catholic dioceses. It is widely believed that 85 percent might actually understate the reach of the problem.
According to Zach, “The United States Conference of Catholic Bishops (USCCB) has done a very good job of providing dioceses and parishes with guidelines for internal financial controls. Many dioceses have added their own guidelines. Where it falls apart is at the parish level. No one would imagine that their pastor would embezzle; no one would imagine that a church volunteer would embezzle. So that kind of internal financial controls that are routine in business, and are strongly recommended by the USCCB, are not being implemented.”
Bob West explains how most embezzlement occurs. “An inherent limitation in a lot of really small businesses and, frankly, the most Houses of Worship, is a lack of staff. [Ideally, a parish would] have one person handle the checks, another handle the books, and maybe even a third person to do the bank reconciliations every month. When one person handles all of those and is trusted, it just creates a situation in which the ability to commit a fraud is clearly there. Fortunately, 90 percent of those people are able to overcome temptation, West states. “I think all churches have situations where they trust people, and there’s a lack of checking and oversight. You see some relatively small [embezzlement cases], and you see a lot between $100,000 and $300,000 and you see the occasional one over $1 million.
Zach explains, “My impression is that when there’s a big embezzlement – a couple million dollars or so – it’s usually the priest doing the embezzling. But when it’s a smaller one, it’s a staff member, and therefore it’s the priest catching him or her.” Zach might be right, since Clergy of all faiths have access to the funds and are the leader of their House of Worship they do have the ability to carry out a large embezzlement. 11 percent of the responders to the survey said they had been embezzled out of more than half a million dollars. Twenty-nine percent reported embezzlements of less than $50,000. Zech and West, business and accounting professors at Villanova University said they did not set out looking for embezzlement. They chose to look at internal financial controls in Catholic dioceses because one result of the clergy sexual abuse scandal was a new focus on financial transparency and accountability. “
There are plenty of folks who think that the scandal would have been uncovered long ago, if churches were more open with their financial records, “Zech said. “Parishioners would have seen the large payouts for settlements much earlier and asked questions.” According to Zech, “If folks were better trained in management, a lot of problems that churches face today could have been avoided.
In 2007 alone, the Associated Press found reports of more than 20 churches in 17 states dealing with embezzlement cases. The cases included clergy or church employees who were either charged with, sentenced for, convicted of, or pleaded guilty to stealing religious funds.
Guide One Insurance, which insures about 45,000 churches in United States as paid on more than 1800 theft claims in each of the last five years, according to Emily Abbas, a company spokeswoman. This figure includes theft by outsides as well as embezzlement by people inside the church. Most cases of church embezzling go unreported, said Kent Egging, pastor of Bethany Covenant Church in Mount Vernon, Washington. Egging, who has studied church embezzlement for his doctor of ministry degree program, says congregations are often embarrassed by what has happened and are unwilling to go to the police.
According to Gene Zeune, publisher of White-Collar Crime fighter, “Usually, three things must be present before someone commits fraud or embezzles. These are Need, Opportunity and Rationalization. Zeune describes this as the “triangle of Fraud.
THE NEED FACTOR
Need takes two forms—direct and indirect. Direct need involves stealing to resolve a desperate financial problem. Direct need is often driven by an addiction or compulsion -drugs, alcohol, gambling or an extramarital affair, or to live a more lavish lifestyle then they can afford. Indirect need, on the other hand, is a simply trying to make ends meat. It typically is the need to keep the company or household afloat. This need results, for example, in cooking the books to make sure a loan is obtained or renewed—to buy time to fix a dire financial problem. Of course, it can also result in a host of other fraudulent acts, such as bank fraud, check fraud, invoice scams, etc.
THE OPPORTUNITY FACTOR
Opportunity is defined as a perception that there is a low probability of being caught. In accounting, the descriptive word for this is “poor internal controls.
THE RATIONALIZATION FACTOR
Rationalization is one’s mental process of making his or her illegal action fit within a personal code of conduct or ethics. In other words, the dishonest person must be able to “talk himself into the action.” Rationalization often results in what Zeune refers to as “situational fraud.” Employees’ propensity to steal or embezzle can be predicted on the basis of a widely accepted formula: 5% to 10% of employees would never – ever -do anything wrong. Another 5% to 10% of employees are always scheming but the real problem is the 80% to 90% of remaining employees who will commit situation fraud. That is fraud that results from being in a position to steal and easily rationalize the illegal deed.
In an article in the May 12th 1995 issue of the National Catholic Reporter, the former treasurer of the Episcopal Church embezzled $2.2 million in church money over five years, spending it on real estate, jewelry, clothing, trips abroad and limousine service, while the Episcopal Church was undergoing massive budget cuts forced to lay off over a third of its salaried employees do to a perceived budget short fall.
Ellen F. Cook, who served more than eight years as national treasurer of Episcopal Church in the United States, diverted about $1.5 million into personal accounts, used a corporate credit card and other accounts for personal expenses totaling some $325,000. She also was charged with writing unauthorized checks totaling $28,000. Some of the money, about $90,000 was improperly transferred into accounts of St. Luke’s Episcopal Church in Montclair, New Jersey, where Cooke’s husband, the Rev. Nicholas Cooke was Rector.
According to Episcopal Bishop Edmond Browning, Cooke explained that Ellen Cooke’s embezzlement went undetected for a variety of reasons, including that she “maintained absolute control of the auditing and reconciliation functions of the treasurer’s office. Asked how such large sums could have been stolen without detection until after Ellen Cooke’s resignation, Solheim responded, “The key word is systematic. It was systematic and it was very clever.”
Solheim noted that part of the reason Ellen Cooke had so much control, authority and oversight was that, in her position, she actually filled two powerful posts.
She served as treasurer of the Domestic and Foreign Missionary Society of the Protestant Episcopal Church in the U.S.A., the church’s corporate entity. As such, she was the chief staff financial officer.
But Ellen Cooke was also the treasurer of the General Convention, the top policymaking body, which meets every three years. In that capacity, she was the top elected financial official.
“She had a sort of power base of her own and used it, obviously, very well,” said Solheim. “She had a very loyal staff, all handpicked, and she was very loyal to them and they were very loyal to her.”
He labeled Ellen Cooke “a very strong personality, and not one to be challenged.”
When Ms, Cooke pleaded guilty in January 1996, she told the judge, “I must have done it,” but testified that she could not remember the crimes, which included redirecting church deposits into personal bank accounts. She was described as suffering from an obsessive-compulsive disorder.
If somebody put $2.2 million into your personal accounts or discretionary accounts, don’t you believe you’d be aware of it? That’s just a lot of money,” said Bishop John Spong, who heads the Newark diocese.
Browning said an investigation of church records by the accounting firm of Coopers & Lybrand, which was hired after financial irregularities came to light, revealed that Ellen Cooke relied on three primary techniques to embezzle church funds:
- She deposited about $1.5 million into her personal accounts at a commercial bank in Washington and a brokerage firm in New York instead of into church accounts at those institutions.
- She wrote approximately $225,000 in checks on church accounts to third parties for her personal use, including tuition payments for her sons and the $90,000 put into accounts at her husband’s former church in New Jersey.
- She misused a corporate credit card and other corporate accounts for personal expenses amounting to about $325,000, including non-business travel in the United States and abroad, plus jewelry and entertainment for herself, family and friends.
In a statement issued May 1 through Washington attorney Plato Cacheris, Ellen Cooke expressed “deep remorse and regret’ for her actions. But she also cast a stone at the church for “the pain, abuse and powerlessness’ she felt during her employment at church headquarters as one of the denomination’s highest-ranking women.
After issuing a tongue-lashing and ignoring a plea for leniency, Judge Maryanne Trump Barry, older sister of Donald Trump, sentenced the former treasurer to five years in prison.
Judge Barry called her a “common thief” who looted church funds “to live the life style of someone she was not,” scolded her for violating a trust, and criticized her for her “spurious psychiatric defense” of a mood disorder causing memory loss. Then the judge imposed more prison time than the 30- to 47-month range provided in Federal sentencing guidelines for the crimes Mrs. Cooke pleaded guilty to in January. Mrs. Cooke’s thievery, Judge Barry said, had caused suffering for the church, its priests, its parishioners and the needy it serves. “There’s nothing sacred anymore,” the judge said. “You see today the burning of churches, the looting of churches, the loss of respect for values and institutions that formerly we held dear.” Judge Barry said she exceeded the sentencing guidelines because Mrs. Cooke, 52, had caused Episcopalians to lose faith in their church’s management of its funds. For Bishop Edmond L. Browning, and other members of the church’s hierarchy, the five-year sentence was a satisfying answer to their written appeal to Judge Barry last week to avoid leniency and “bring a just and equitable end to this sorry chapter in our history.”
After the sentencing, Bishop Browning issued a statement saying, “The judge herself has recognized the enormity of the tragedy of this embezzlement.”
Embezzlement is a crime of opportunity. The easiest way to solve it is to have safeguards in place from the moment that money is placed in the collection basket or debited from a checking account until after the bank checks are reconciled.