During 35 years in private practice, one law school lesson was demonstrated true over and over. Wrongdoers are usually “gone, dead or insolvent.” In the case of church embezzlers, usually two out of the three. Charity and church embezzlers usually flourish when trust and faith supplant business common sense altogether. Embezzlers can make a church, charity or business look like a failure when in fact it was at least marginally successful if not completely successful.
In Agape Family Worship Center, Inc. v Gridiron, Order Granting in Part and Denying in Part Plaintiff’s Motion for Summary Judgment (USDC, CD Cal. 2018), Agape was (and probably still is) a large non-denominational church that allowed Gridiron to ascend from assistant to the position of Chief Financial Officer (“CFO”) in fact if not in name. Gridiron was permitted to hire a bookkeeper and Gridiron recommended that Agape stop hiring third party auditors. Trust and faith supplanted business common sense altogether. From 2008 to 2014 Gridiron diverted checks and cash in the amount of $4,815,963 to feed a gambling addiction. Most charities and churches are so embarrassed when confronted with such a situation, if they survive it financially, they remove the wrongdoer from employment or position of trust and quietly separate that person altogether. Some use the word “excommunication” and some do not. But, Agape did not do only that. Agape also did not simply call local law enforcement. In small towns (and in some big ones) local law enforcement is not equipped to handle financial crimes. Agape notified the Federal Bureau of Investigation and, so it seems, the FBI engaged the criminal division of the Internal Revenue Service. Gridiron was charged with wire fraud and filing fraudulent tax returns. (Whatever other criticisms the IRS may deserve, almost no one handles financial crime as thoroughly once their attention has been obtained.) Gridiron was sentenced to 57 months in prison and ordered to pay restitution of $4,815,963. Agape also had some insurance coverage for the loss which was a second way Agape’s response was better than most. Agape or its subrogated insurance carriers, it is not stated in the opinion which, sued Gridiron for the amount stolen as well as punitive damages, treble damages, attorney’s fees spent chasing Gridiron in his bankruptcy as damages and attorney fees for the case. The Court granted summary judgment to Agape for the actual damages of $4,815,963 but denied relief as to punitive damages, treble damages, and a third of a million dollars in attorney fees. While the intricacies of the denials is outside the scope of this report, it is interesting to note the Court concluded punitive damages was too much punishment when added to the prison time. It seems likely Gridiron was judgment proof but such a judgment might have had other purposes. One such purpose might have been to allay doubts about whether some or all of the money was recoverable, i.e., church leadership may have needed the judgment for internal political purposes, especially if church leadership needed to regain trust with the giving members or avoid their own lawsuits.
If a full blown annual audit is too expensive, then at least an annual review makes sense if entrusted to a hired, non-member, Certified Public Accountant. Alternatively, auditing one month of a year, randomly chosen, might be enough to dissuade a thief. Offerings should be counted and deposited by a rotating leadership of no less than two leaders not related by blood or marriage that also leave a written record for each collection counted. Check writing, credit cards and wire transfer authority should be structured for security and not just convenience. No single church leader, including the pastor, should have non-transparent uninspected financial control. Financial controls should be reviewed periodically by a Certified Public Accountant because what may be appropriate for a start up charity or church might have been outgrown. Once trust is lost, it is very hard to ever get again.