Note: This is the second article in a series examining financial records and receipts for pastors and religious organizations. Future articles will explore travel expenses, per diem expenses and fundraising.
In 2019 an audit of Fellowship Church, one of America’s largest multi-site megachurches pastored by Ed Young Jr., uncovered financial crimes. Two years later, church financial administrator Lara Ford pled guilty to embezzling more than $1 million.
Ford used Automated Clearing House to transfer at least $363,834 from the church’s Allaso Ranch account and $324,313 from another church account to her personal bank accounts. The thefts were disguised as payments to vendors and refunds for children unable to attend the church camp.
Ford’s crimes are described as fraudulent disbursements.
These crimes are easy to disguise. By creating fake invoices, a dishonest church administrator can manufacture a paper trail to cover his or her theft of church funds.
How common are these crimes?
Occupational Fraud 2022: A Report to the Nations, a report from the Association of Certified Fraud Examiners based on an examination of more than 2,000 cases of financial fraud in 133 nations, estimated on average “organizations lose 5% of revenue to fraud each year.”
The report noted, “Financial statement fraud schemes are the least common but most costly.”
Examples of financial statement fraud schemes include billing shell companies for fictitious expenses, falsifying wages and submitting duplicate receipts for the same expense.
The Small Church Pastor Submitting Duplicate Receipts
Pastor Don Galardi lived in a modest home and drove an old truck. The outside world and church congregation would not expect the pastor of engaging in improper financial activities.
In March 2019, Galardi, retired from his position as senior pastor of Community Evangelical Presbyterian Church (CEPC) in Owosso, Michigan, a small city of about 15,000 west of Flint, Michigan. Galardi served at the church for 39 years.
John Skidmore, joined the church missions committee in 2013 and in 2019 discovered the pastor received more money in missions reimbursements than most of the church’s full-time missionaries combined. The elders were supposed to provide oversight for Galardi’s missions spending, but Skidmore discovered no evidence that such oversight occurred.
After examining missions receipts Galardi turned in for reimbursement, Skidmore presented his findings to the elder board on July 8, 2020.
One month later, the church elders dismissed the accusations and discredited the whistleblower via a letter sent to church members, which stated, “The Session [church elders] not only reviewed the accusations against Rev. Galardi, but also reviewed our internal procedures and practices. The Session has hired an outside firm to conduct a thorough review of financial processes and is committed to following best practices, including greater financial transparency.”
The letter also claimed that “Session has investigated available evidence that includes documents provided by Skidmore, Session records, financial reports of the treasurer and accountants …”
The name of the accounting firm was not disclosed to church members, and there is no public evidence such a firm was ever hired. No accounting expense was listed on the church’s 2020 financial report.
While the elders promised greater financial transparency, they never disclosed to church membership any of the “minor errors” which they claim Galardi made.
For his part, Galardi admitted to being sloppy and making some mistakes but said that he did nothing intentional. The board described Galardi’s mistakes as “de minimis” or inconsequential.
Meanwhile, an IRS article De Minimis Fringe Benefits states, “The IRS has ruled previously in a particular case that items with a value exceeding $100 could not be considered de minimis, even under unusual circumstances.”
Skidmore provided copies of Galardi’s expense reports to Alan M. Lane, an independent accountant for review.
“I inspected the 12/30/2014 expense report submitted by Don Galardi. The expense report summary contained no mathematical errors and was for the reimbursement of $3,369 of auto repairs, $1,548 of fuel, $40 of car washes and $527 of insurance. There were no receipts for the fuel purchases, car washes, or auto insurance. There were also no receipts for $982.64 of the repairs. In addition, one of the receipts submitted was for a 2015 purchase.”
No receipts for almost $1,000 worth of vehicle repairs!
The IRS requires that employees document these expenses if they are reimbursed by their employer. IRS Publication 526 states plainly, “You must keep reliable written records of your car expenses.”
The IRS explains:
“If you claim expenses directly related to use of your car in giving services to a qualified organization, you must keep reliable written records of your expenses. Whether your records are considered reliable depends on all the facts and circumstances. Generally, they may be considered reliable if you made them regularly and at or near the time you had the expenses. For example, your records might show the name of the organization you were serving and the dates you used your car for a charitable purpose. If you use the standard mileage rate of 14 cents a mile, your records must show the miles you drove your car for the charitable purpose. If you deduct your actual expenses, your records must show the costs of operating the car that are directly related to a charitable purpose.”
Galardi failed to meet these standards as no mileage log was submitted with the receipts.
More problematic is that Galardi submitted duplicate expenses for reimbursement. On July 28, 2018, Galardi submitted an expense voucher for airport parking costing $43.75 and on August 28th he requested reimbursement for the same parking expense.
Instead of a receipt, Galardi included a copy of a bank statement as proof of the $43.75 parking expense.
In 2017, the church reimbursed more than $600 worth of auto repairs performed on the car primarily driven by Don’s wife Diedre who was not a church employee.
Church bookkeepers should be on the lookout for duplicate expenses and improper reimbursements. These expenses can add up quickly, creating large financial losses for small congregations and megachurches.
Postscript: Trinity Foundation emailed Don Galardi for comment but received no response.