Evolution of reporting and control for churches and charities in the United States: A study of the Southern Baptist Convention Annuals, 1845–2010

Abstract

From its inception in 1845, the Southern Baptist Convention has always had a theologically-based stewardship focus regarding its donated funds and developed financial controls early on that required audits and bonding of church officials. This stewardship focus has been maintained over its 165-year history. Finally, the Convention’s Meeting Annuals show a comprehensive view of the evolution of accounting control and reporting for religious and secular not-for-profit organizations from simple double entry accounting methods to more sophisticated GAAP-based financial reporting.

Fraud and incompetence: Accounting in the Papal States (1831–1859)

“…In respect to fraud, the cases of Galli and Antonelli allow us to extend beyond Jones' (2011) fraudulent false accounting, to include Archambeault et al's (2015) wider notions of asset misappropriation, corruption, and FSF (financial statement fraud) (see also Heier, 2016). Evidence of nepotism from the fraudulent activities of Galli and Antonelli should be added to this list.…”

“…This is what occurred in the US Southern Baptist Convention in 1927 and 1928 where one trusted treasurer falsified Bills of Exchange and another took out loans in the organisation's name. Both men stole the funds for personal use (Heier, 2016).…”

“…Asset misappropriation and corruption involves individuals misappropriating organisational funds for personal benefit (Fremont-Smith and Kosaras, 2003;Heier, 2016;LeClair, 2019). Fraudsters are often charismatic leaders, well-placed insiders (Agostini and Favero, 2017;Gibelman and Gelman, 2004;Heier, 2016;Heier and Leach-López, 2010), or as Jones (2011) suggests, 'overstrong individuals'. In addition to misdirected funds, managers and trustees of an entity can undertake fraud in the nonprofit and public sectors by paying excessive salaries and perks.…”

“…The organisational form may also delay the discovery of fraud. Pontell (2005) draws on Wheeler and Rothman (1982) to state that insiders can use organisations as 'vehicles for fraud', enabling them to defraud greater amounts and to remain undetected for longer (Heier's 2016trusted treasurer stole US$900,000 in 1928. Thus, insiders can use the organisation either as a 'sword', to steal from other organisations, or as a 'shield' using the organisation's 'resources and legitimacy to avert detection and negative sanctions' and neutralise internal and external controls (Pontell, 2005: 310).…”

“…Certainly similar studies of religious entities at this time show the benefits of such control. For example, Heier (2016), who used data from the annual reports of the US Southern Baptist Convention, found regulation for internal controls, the imposition of audit (in 1885) and a keenness to be accountable financially to members. When fraud hit the Convention in the 1920s, further controls were introduced to reduce financial risk.…”