Two nuns skimmed $500,000 over a decade from their Catholic school employer and gambled away the cash in Las Vegas, an internal investigation by the school revealed last month. While the incident seems unbelievable, it’s common, as churches often fall prey to fraud and embezzlement by employees. And though the fix is easy, Congress has done nothing about it.
Christian churches lose $63 billion each year worldwide to internal “ecclesiastical crime,” according to estimates by the Center for the Study of Global Christianity. That’s more than 16 percent of churches’ total income. The director of that study said in 2013 that “as much as 95% of fraud within churches goes undetected or unreported.” And yet, one in 10 Protestant churches still self-reported embezzlement in 2017.
These commonplace crimes are often swept under the pews to avoid scandals that would erode donor confidence. In 2016, Americans donated more than $120 billion to religious organizations, most of which were congregants donating to churches. Congregants often sacrifice a great deal donating or tithing to their house of worship. But in the case of the gambling nuns, the church is “not pursuing criminal charges after the nuns said they’re sorry.”
Churches are uniquely susceptible to fraud for many reasons. Religious authority discourages questioning, but that dominion does not end with theology; it often extends to administrative issues. Coreligionists tend to trust one another in ways that can prove dangerously naive.
Additionally, churches function partly by insisting that people need moral guidance and then claiming the moral authority to provide that supervision. Downplaying ecclesiastical fraud avoids the awkward acknowledgement that religious leaders are only human.
But, most importantly, churches are unique because they are financial black holes.
Unlike other 501(c)(3) organizations and charities, churches are exempt from filing financial information with the IRS, including the annual Form 990, which tracks every penny that comes into a secular nonprofit and every penny it spends.
The lack of transparency, reporting, and auditing makes churches, synagogues, temples, and mosques “among the most vulnerable entities” to fraud and abuse, according to experts. As one tax law expert explained in the Cardozo Law Review in 2013, “because of their opacity and the unique nature of religious authority, churches are more likely to foster and shelter malfeasance.”
As the gambling nuns proved, the Catholic Church and its schools are rich targets. Recently, it was found that one Michigan priest embezzled about $5.4 million over 26 years. Another in Connecticut stole $1.3 million over seven years, some of which he spent on male escorts. And over nearly a decade, a 67-year-old church clerk for the Archdiocese of New York stole $1 million and spent a decent chunk on collectible dolls.
This fraud happens across all denominations: Pentecostal, Judaism, Buddhism, Hindu, Congregational, Presbyterian, Baptist, Lutheran, Methodist, and the Black Hebrew Israelite Church, whose leaders siphoned off $5.3 million over 10 years. And it’s not just small local congregations — the treasurer of the national Episcopal Church embezzled more than $2.2 million from church’s coffers over five years.
Churches’ tax exemption is a privilege, not a right. Congress can attach strings to that privilege, including financial transparency.
It doesn’t have to be this way. Congress can compel every church to file financial information with the IRS, just like their nonreligious counterparts.
There is no legal or constitutional roadblock to this fix, no viable argument that it violates churches’ religious freedom. Churches’ tax exemption is a privilege, not a right. Congress can attach strings to that privilege, including financial transparency. The Supreme Court has pointed out several times that nothing in the Constitution requires that we exempt churches from taxes: “We do not mean to say that religious groups and the press are free from all financial burdens of government.”
If we can legally tax churches — and we probably could, so long as the “generally applicable tax” imposes no constitutionally significant burden on the churches’ religious practices or beliefs, as the Supreme Court explained in the Jimmy Swaggert Ministries case — then we can have churches file financial information with the IRS, which is far less burdensome.
Congress has considered this fix in the past, especially after high profile scandals, and the House has even passed bills to remove churches’ exemption. But churches have always pushed back. In the 1980s, some religious leaders even went so far as to call any congressional consideration of church finances as an “insidious” attack and “the beginning of a new ‘inquisition.'” In recent years, given the fact that evangelical voters typically turn out in large numbers to support Republican candidates, GOP lawmakers in Congress may be hesitant to take any action that could hurt that relationship.
Public trust requires transparency. Churches are given a significant public trust — nonprofit status — and transparency shows the public that they are honoring that trust and that it is not being abused or exploited. Some Christian publications understand this dynamic and some churches voluntarily file or publish the Form 990 or an equivalent.
Annual reporting, and the internal audits that often accompany reporting, would almost certainly have caught the gambling nuns much earlier in their decade of grifting. This would also prevent other crime and abuse, like money laundering. Prosperity preachers — think Joel Osteen, Paula White, Kenneth Copeland — rake in untold millions off their congregations. In 2015, mega-preacher Steven Furtick built a multi-million dollar, 16,000-square-foot mansion and argued that disclosing his salary would be “arrogant” because church staff salaries are “between them and God.”
Whether a matter of theology or because donors who barely make ends meet might be less willing to give if they knew their pastor was pulling down seven or eight figures a year, mega-preachers are loath to disclose anything about their church finances, sometimes even when the U.S. Senate orders them to.
Financial transparency is critical to preventing fraud and abuse. This is why the reporting requirements for nonprofits were instituted in the first place. Without this transparency, churches face fraud and abuse, and so do U.S. taxpayers.
Andrew L. Seidel is the author of The Founding Myth: Why Christian Nationalism is Un-American, which debunks the myths underlying Christian nationalism and hits shelves in May 2019. He is a constitutional attorney at the Freedom From Religion Foundation and specializes in the separation between state and church.