Why church fraud happens more often than you think

MOORHEAD -- As pastor of Immanuel Lutheran Church in Wahpeton, N.D., the Rev. Alan R. Werth said he stayed far away from the congregation's money. He didn't want to be accused of mishandling funds.

So when Werth found out in 2001 that the church's secretary just down the hall stole more than $160,000 over three years or more by writing checks to herself, he felt shocked and devastated.

The secretary, Melisa Lunsetter, had confessed "out of the blue" when new church procedures were to reveal the theft, Werth said.

"Everybody felt a sense of betrayal. We all considered the person a friend, and to have this happen to us was very difficult," said Werth, who retired in 2010 after nearly 13 years with the congregation. "A trust had been broken, and it's very difficult to repair that."

Religious organizations can be particularly vulnerable to financial fraud, experts say. Their culture of trust, volunteer leadership and often a lack of training in financial management can create opportunities for theft and embezzlement if good internal controls are not in place.

And it may happen more than people may suspect.

How could they?

Recent allegations in the region of fraud in churches show that vulnerability.

Robert Duane Larson, the former bookkeeper of the Northwestern Minnesota Synod of the Evangelical Lutheran Church in America, is being investigated for allegedly embezzling $250,000 or more from the Moorhead-based synod. He was fired Jan. 2.

Larson's predecessor, Rosemarie Johnk, was fired in May 2004 and later pleaded guilty to theft for making more than $24,000 in unauthorized purchases using the synod's credit.

A priest in East Grand Forks was recently accused of theft and misappropriation of donations after allegedly initiating a special collection without permission and failing to follow internal controls. The Rev. Carlos Velez, an associate pastor at Sacred Heart Catholic Church, was placed on administrative leave and is being investigated by the police, according to news reports.

These stories come as no surprise to Herb Snyder, an associate professor of accounting at North Dakota State University. He said the way churches are run places them at greater risk if someone decides to steal from the organization.

People who work for religious organizations often aren't money-minded. The focus is on the mission and ministry versus day-to-day operations.

"There's this feeling the fact that they're doing good work protects them. Who would steal from widows and orphans?" Snyder said.

Nonprofits often are used to feeling broke, Snyder said, because there's never enough money to do all the work they'd like. So leaders may feel like there isn't anything to steal, but these organizations actually have substantial funds to pilfer.

Snyder said simple steps, such as comparing budgeted numbers to actual amounts and following up on discrepancies, are basic controls that can provide protection.

"If nothing else, the idea of transparency, that more people are looking more often at the numbers, usually goes a long way to preventing this stuff," Snyder said.

But those in a position of oversight, often volunteers on a governing board, may not realize they have financial oversight and may not have the training or time to thoroughly check the books.

Typically, the fraud is committed by a person who has worked for the organization a long time and is in a position of trust, contrary to what people might expect, Snyder said.

"Most of the people who commit fraud in situations like this have never committed a crime before in their lives," he said.

Larson, Johnk and Lunsetter did not return calls from The Forum seeking comment. A message left at Velez's church was not returned.

Difficult to prosecute

Assistant Cass County State's Attorney Tristan Van de Streek said embezzlement crimes are often uncovered when the person committing the theft gets sick, goes on vacation or retires and someone else takes over the books.

Prosecutors in the Cass County State's Attorney office couldn't recall a case of financial fraud in a religious organization in the county in the last 25 years, Van de Streek said. Clay County's Chief Assistant Attorney Heidi Davies said the last case she recalled was the Johnk case.

Yet, a survey of U.S. houses of worship done for an article in Fraud Magazine's January/February issue found that 13.4 percent of church leaders interviewed acknowledged they had experienced fraud within their organization in the past five years.

The survey also found churches generally lack controls like segregation of duties, or don't consistently follow them. Some of the religious leaders interviewed were unwilling to admit fraud, and few felt their organizations were vulnerable to the crime. The article suggested the frequency of church fraud and the money involved is "seriously underreported."

In many cases, it's not up to prosecutors if perpetrators are brought to justice.

"From my perspective, if the money being embezzled are public funds, then the victim is society as a whole and prosecution must proceed," Van de Streek said. "If the victim is a private entity ... then it's not really the business of the prosecutor's office to force a criminal case."

Snyder said cases of fraud in houses of worship are seldom prosecuted. Organizations may simply let the offender go quietly, too embarrassed to bring forth charges. They may also want to focus on forgiveness instead.

Checks and balances

Bishop Larry Wohlrabe of the ELCA Northwest Minnesota Synod said he believes it's important to acknowledge when financial fraud has occurred in an open and transparent way. That's why he sent a letter regarding Larson's termination to synod congregations and leaders on Jan. 6.

Wohlrabe wouldn't speak specifically about the accusations against Larson, but speaking generally said he would advise any church to report such crimes to authorities. He said it is important leaders articulate a desire to see justice done.

From there, Wohlrabe said religious organizations that have experienced fraud need to focus on the recovery of funds, and put in place financial procedures to move ahead.

"You try to learn everything you can about why the embezzlement happened and where in the midst of that the organization can put in new practices and procedures to minimize the possibility of it happening again," Wohlrabe said.

Wohlrabe said the accusations against Larson were a wake-up call for him on the vigilance needed.

"Were we knowingly negligent or purposely looking the other way? No. I've seen no sign of that," he said. "In the rearview mirror of the clear light of hindsight, we can always see signs of things we should have done differently.

"I'm guessing most organizations who have experienced financial embezzlement could write a book of what they wish they'd done, and I have my own list," Wohlrabe said.

Scott Hoselton, financial officer for the Roman Catholic Diocese of Fargo, said checks and balances of church funds are necessary to avoid tempting someone to commit a crime, as well as to avoid the appearance of financial misdeeds. He cites the Lord's Prayer: "And lead us not into temptation."

Hoselton is responsible for overseeing all the financial elements of the diocesan corporation and its sister operations, and offers oversight and consultation for the 132 parishes and 12 schools within the diocese. Within the Catholic Church, Canon Law requires each parish have a Parish Finance Council to assist the pastor with administering the goods of the church.

The diocese also requires two people be involved in the counting of collection money. These two people must not be married, and the teams must rotate, Hoselton said, which is a challenge as North Dakota becomes more rural.

"It's a struggle for every faith community to find enough people to make sure checks and balances are in place, but it's important we continue to insist upon it," Hoselton said. "Controls don't mean we don't trust people. Controls mean we want to protect people, ourselves included, from doing something inappropriate with money that doesn't belong to us."

Rebuilding trust

When finances are mishandled by someone in a position of trust, it shakes the congregation.

In 1996, the Rev. Leonard Burckhard, then a priest at St. Catherine's in Valley City, N.D., for seven years, was asked to leave the parish, accused of stealing up to $189,000 and spending it on baseball memorabilia, fishing trips and playing the stock market.

Theft charges were brought against Burckhard twice, and twice they were dismissed by district court judges, citing a lack of jurisdiction. The North Dakota Supreme Court heard the case twice, reversing the dismissal in 1998 and affirming the second dismissal in 1999, citing an entanglement of church and state matters.

Hoselton said Burckhard's theft occurred because the proper checks and balances weren't in place. "It was based on a trust factor," he said. "There were other staff that didn't hold him accountable."

He said Burckhard is still an ordained priest, but retired and "living independently to his own devices." Burckhard returned $67,000 of the funds. He declined to comment when contacted last week.

Hoselton said St. Catherine's now has proper controls in place and has moved forward. The diocese worked with people who felt hurt or disenfranchised, "people with personal relationships with the former pastor who may have had their faith rocked a bit more."

Some members to this day don't believe Burckhard committed a crime, Hoselton said.

Werth, the retired pastor from Wahpeton, said he felt Immanuel Lutheran's congregation had moved on by the end of his tenure there. But the worry that it could happen again was always in the back of his mind, Werth said, despite new safeguards in place.

He struggled some with balancing virtues of forgiveness and justice toward Lunsetter, who according to court records pleaded guilty to theft of property in 2002 and served six months in jail. She was ordered to pay restitution of more than $165,000 and has paid about $35,000, court records say.

"Our human nature doesn't want to accept that we would just plain forgive. We want some consequence. We want some blood. Your pound of flesh, as Shakespeare puts it," Werth said. "To step beyond that was a challenge, for me personally to teach that."

At first, members didn't want to trust each other, he said. Some wondered what the congregation could have done for the Lord if they'd had that money. And the question he heard most often: "How could someone steal from God?"

"Green is green, I guess," Werth said.