Financial Controls for the Local Church
Controls of Fixed Assets
and Liabilities
Minutes of Board Meetings:
Churches are considered non-profit organizations. In many states churches are required to be incorporated. This incorporation requires that the church keep adequate records of all board meetings, financial decisions, and policies of the church. These minutes of board meetings can help avoid the risk of church division when there is a question of policy or procedures. In the church record books, minutes should be kept about the establishment of the church, the incorporation of the church , policies and doctrines of the church, establishment of salaries, employee benefit packages, as well as notes of all church business meetings. The church should also maintain an inventory of all its assets. This internal control is necessary so that the congregation knows at all times precisely what assets it owns and where they are located. Valuables, such as securities, jewelry, and valuable documents should be placed in a safe deposit box. This will prevent those assets from being destroyed by fire, accidental loss or theft. A periodic inventory of all assets should be taken annually. Such records should include a description of the item, the date it was purchased, the cost, and eventually its disposition and sale of the asset. This is important because church employees and volunteers come and go. A written record helps to verify what is available for use and what the church actually owns.
Mortgages and Liabilities:
Churches should keep an adequate record of all its mortgages and its liabilities. These liabilities should be compared with financial records and the balances verified on a regular basis. This control can effectively allow the church to know what it owes and what funds may be encumbered in future planning. As a consequence of using cash-basis accounting, most churches do not monitor their liabilities, but rather major on their cash flow. Only authorized persons should be allowed to sign for a church mortgage or encumber the church in a liability transaction. Churches should review their liabilities to check that their lender has properly classified payments. More than one church in the past has discovered that their extra principle that they mailed in for the advance payment of the mortgage has been credited to pre-paid property taxes or other escrow payments. Other churches have discovered that they are paying for a bill for another church that was wrongfully billed to their church. Controls over mortgages and liabilities will typically include review and verification of recorded amounts.
Maintenance and Insurance of Plant:
Equipment and buildings purchased by the sacrificial gifts of God's people require that they be maintained for the benefit of those sacrificial donors. Buildings must be kept clean and safe at all times. They should be adequately insured for losses due to fire, theft, and liability for injury and counseling.
A fidelity bond is a must for all cash handlers to make certain that the church will be reimbursed in the event of a defalcation. The insurance company will reimburse the church for the loss . They are likely to press more severely for recovery of their loss than may the church. This in it self may act as a deterrent of defalcation. Good records and internal controls are necessary to prove to the insurance company that a loss did occur. Some insurance companies even recommend that assets be video taped. In the event of some losses the film may be reviewed to determine a replacement value.
The Annual Audit
Perhaps the most effective tool to attain good internal controls is the annual audit by an outside professional. When an audit is properly done it will not only reveal errors, but it will assure members of the church that their money was used in a responsible way and for its intended purpose. It may even help the church as a corporate entity to be a better manager of it resources for God by pointing out errors in judgment or poor organization. Through the rotation of leadership, methods can quickly become outdated and weak internal controls can become ingrained. The audit can improve the reputation of the church and prevent charges of impropriety against those who handle church funds. The cost may seem prohibitive, but certainly good stewardship demands it, the reputation of the church compels it, the protection of the church assets necessitates it, and often the church constitution requires it to be done annually. In a day of super churches, television evangelism, and multimillion dollar ministries, can church leaders give any less heed to good financial controls for the local church?
Copyright 2002