THE credentials of the former Head of Operations in the Two Cities, in London diocese, Martin Sargeant, went unchecked for years, allowing him to defraud the London Diocesan Fund (LDF) of more than £5 million undetected, a fraud-impact report has found.
In December 2022, Mr Sargeant was sentenced to five years in prison for defrauding the LDF of £5.2 million over a decade (News, 23 December 2022).
On Tuesday, the LDF announced that it had received an independent fraud-impact report from Crowe LLP, dated May 2023, which the LDF Audit and Risk Committee had commissioned. This found that Mr Sargeant was given free rein to divert payments to bank accounts that he controlled even after he had resigned, owing to a lack of independent scrutiny, checks, and handover between him and archdeacons.
The LDF confirmed that the Court had allocated Mr Sargeant’s remaining assets to “specific churches known to have suffered loss, with the balance returned to the City Churches Fund. A further sum has been received from the main gambling company used by Mr Sargeant.”
Mr Sargeant, who is 53 and from Dudley, was charged with fraud by false representation and money-laundering in July 2022 (News, 15 July 2022). News of his arrest had emerged two months previously, but, at the time, he could not be named (News, 25 May 2022). In October, he pleaded guilty to one count of fraud (News, 21 October 2022). He was later sentenced at Southwark Crown Court, which heard that he had “defrauded the church in a persistent, sophisticated, and frankly brazen manner” between 2009 and 2019.
He reportedly spent the money on flights and “personal entertainment or frivolous things like gambling”.
Crowe was tasked with reviewing the financial transactions undertaken by Mr Sargeant during his time at the archdeaconry of London (2007 to 2019), to set out what happened and how the fraud was achieved, to establish if further fraudulent activity had taken place beyond that established through the courts, and to make recommendations on improving financial control and corporate culture.
This work involved 15 interviews. The interviewees included the former Bishop of London, Lord Chartres; his successor, the Rt Revd Sarah Mullally; the Archdeacon of London at the time, the Ven. Peter Delaney; and his successor, the Ven. Luke Miller, as well as rectors and churchwardens of City churches.
The report states that payments allocated to City churches were diverted from the City Churches Grants Committee (CCGC) and paid into bank accounts controlled by Mr Sargeant (MS). “There was a lack of transparency regarding CCGC activities regarding the City Churches and MS was able to control the flow of monies and information from the CCGC to the Churches.”
The CCGC allocates an average of £1.4 million a year. “There was a lack of effective governance and independent audit of funds administered,” the report says, and no expenditure reporting was in place. This meant that “MS had the opportunity and access to considerable funds over a number of years.”
Payments owed by developers to City churches were also paid into his accounts. “MS controlled the relationships with the Developers and did not allow other Church Representatives to be involved.” At this stage, “the financial scale of the fraud increased considerably. . .
“The lack of segregation and independent oversight, aligned to MS being in control of specific bank accounts, created the opportunity for funds to be diverted.”
Crowe also found a “setup of a series of bank accounts (for churches and the Archdeaconry) that were largely controlled by MS”, and that a “lack of a structured and complete handover between Archdeacons and MS and MS’s successor allowed a bank account (Lloyds Archdeaconry Account) to be fully controlled by MS and for the bank account to not be known to and controlled/monitored by the Archdeaconry.”
Its report states: “The fraud built over an extended period of time, over which MS exploited a series of control gaps and changes in personnel to put himself in a position to have control over financial transactions and information flows between a number of parties.”
Mr Sargeant was found to have “cultivated an environment of poor financial governance and ‘unofficial’ systems’”, and proposed “complicated financial transactions” between churches. Individuals were told to pay forward unspent monies to the next project rather than return them centrally. Mr Sargeant opened several bank accounts “without appropriate signatories or transparency”.
The fraud was “relatively exceptional” in that he acted alone, the Crowe report says. It did not find any fraud that had not already been subject to the criminal courts.
The lack of involvement of others “most likely contributed to the fraud continuing”. Although interviewees said that Mr Sargeant had not shown obvious signs of unexplained wealth, “there were opportunities to recognise and address the behaviours which would have prevented the scale of the fraud perpetuated, before MS had a wider remit as Head of Operations.”
In one instance, Mr Sargeant “appeared to credentialise himself through working with one church” from 2003 as a consultant, his responsibilities increasing as he took on work with other churches. This eventually led to his appointment as Head of Operations.
The report finds: “At each point in his progression and engagement we have not been able to evidence independent checks as to his experience and references. In addition, we have not been able to evidence challenges from those in an oversight role as to the behaviours MS exhibited, although it was clear that the situation changed when Bishop Sarah [Mullally] was appointed in 2018.”
The report also refers to “a number of cultural and control environment factors which have allowed the fraud to take place”, including Mr Sargeant’s having been seen by those interviewed to be acting with the “authority of the Bishop” — Lord Chartres — until the latter’s retirement. “There was also reference to MS undertaking pastoral work and decisions, which were outside of his remit.”
The report finds that, “over time”, Mr Sargeant “came to dominate” CCGC, “which became a ‘rubber stamp’ with the decisions officially approved by Bishop Richard, but it was not known if the Bishop ever disagreed with a CCGC decision”.
Churches operating independently or on a siloed basis contributed to the culture that led to Mr Sargeant’s exploitation, but the report puts more weight on “a lack of transparency of financial information and decision making and an absence of independent reporting and audit”.
Moreover, “Where issues were raised, these appear to have not been recognised for their potential significance and investigated/actioned.”
The report makes several recommendations, some of which, it says, are already being put in place by the LDF. These include the development by the LDF of a set of working templates and procedures for churches to adapt to financial and operational management; this should consider mentoring support and sponsorship.
A set of fraud-awareness materials and basic financial training for new priests, treasurers, and PCCs should be created, it says; and the Whistleblowing Policy should be reviewed, including the way in which issues are reported, triaged, and investigated. The current policy is “not always clear as to what a disclosure is and how this would be investigated. There also needs to be independence in the reporting process where concerns are not being addressed.”
Other recommendations are: a working group should be established to compare good negotiation, including tracking money and receipts; CCGC grant processes should be documented and easily available to churches; end-of-project financial audits should be completed; minutes and expenditure summaries should be published to improve transparency; and the LDF should confirm all bank accounts and signatories to be used as a reference point for handover for new roles.
Finally, it recommends that “an auditable trail should be maintained. There should be a co-ordinated follow up of church rates collected, with the churches comparing what could have been collected to actuals to ascertain if there are any additional fraudulent amounts due to the church which have been paid to one of the two bank accounts maintained by MS.”