The control environment is the foundation for good internal controls for any organization, whether for profit or not-for-profit. You might call the control environment the “tone from the top.” A control conscious executive management will ensure proper internal controls are in place and are performing effectively. Management that does not appreciate the need for internal controls or take internal controls seriously courts serious trouble. The internal control system will not function as intended, no matter how good it looks on paper. The result is a fertile breeding ground for financial fraud and irregularities.
Sadly, the lack of control consciousness is common in the not-for-profit sector. In the last blog, I looked at internal control breakdowns where malefactors were actively involved. It is obvious to any onlooker what the problem is in such occurrences. Unfortunately, organizations can end up in severe financial difficulty even when the executive management is well-meaning but has failed to implement adequate internal controls.
One example of this appears to be the Greek Orthodox Archdiocese in the United States. The leader of the Archdiocese, Archbishop Demetrios is someone widely recognized for his erudition and his faithfulness. He has been a mainstay on the American religious scene now for decades. Yet, news began to filter out of the Archdiocese in 2017 of irregular financial transactions.
The genesis of the problem is a Greek Orthodox Church was destroyed during the terror attacks in New York City in 2001. Initially, the City refused to allow the Archdiocese to rebuild the church. After taking the City to court, the Church was allowed to begin construction on the new church. Funds were raised across the country for the new Church. The estimated price tag of the new church was initially pegged at $30 million.
Unfortunately, the price of the church construction has soared to $80 million, a staggering $50 million above the original price. Even more disturbing was the allegation $15 million was missing from the construction funds. Federal authorities announced an investigation into the situation earlier in 2018. The results of the investigation are still pending. Not surprisingly, many parishioners are up in arms. There have been demands the Archbishop step down and allow a new bishop to settle the entire matter. Interviews with those familiar with the financial management of the archdiocese show the chancery (office) of the archdiocese was disorganized at best, and inept at worse.
While the Archdiocese has many important things to do, such as looking out for the welfare of souls, it must also exercise stewardship over funds it has been given in trust. Sadly, if there had been rudimentary internal controls in place over cash, this entire scandal may not have happened. Professional managers do not claim to have any special knowledge about active ministry. Perhaps it is time churches and other NFP organizations turn over financial management of their organization to professionals.