Financial Controls for the Local Church

Controls Over Disbursements

Authorization Controls

The need for proper controls over disbursements is as necessary as that of cash receipts. Churches should not let just anyone have access to the church checkbook. It is best to limit those who are authorized to sign checks to a selected few. In large churches it is best to designate one person as a purchasing agent. He may be assigned by the pastor or assistant pastor or he may be a hired full time professional church administrator. "No person will incur an expense on behalf of the church without the proper advance approval of the person responsible for the purchasing" (Neithold, 1976, p. 57). Some churches have allowed individuals to encumber the church by purchasing an item themselves and then demanding reimbursement without the proper approval of those in authority in the church. Other churches have a policy which allows church members to personally purchase items costing less than ten dollars for their department and then later be reimbursed by the church financial secretary. Other churches have established a policy that items that are not part of the church budget, and cost over one hundred dollars require a church vote. The best policy is to have only one person to act as the church's purchasing agent for all ministries. This will insure efficient procedures for internal controls, that the best prices will be paid for services rendered, and that the budget will be properly carried out.

Budget Controls

Perhaps the most valuable tool of authorization control is the church budgetary control. Unfortunately, very few church officers have mastered the art of preparing and using budgets in a meaningful manner. In many churches the treasurer and trustees know that the budget is the tool for planning and control, but they're reluctant to abide by it within a reasonable degree of flexibility and rigidity. The treasurer, committee heads, trustees, deacons and pastor should work together and use the budget to determine realistic goals or objectives of the church for the coming year. Budgets will keep church members and officers informed of the church progress. "With such comparative information available, expenditures that are out of line can be noted and examined. Intelligent adjustments in the next years budget can be made." (Holck, 1961, p. 29) The budget must not hinder the work of the church, but rather help it. It must not be based on hunches or intuition, but rather on past internal financial records and future cost analysis. It must be flexible enough that accounts can be adjusted when it is necessary to balance out over-budget accounts. It must be rigid enough so that every attempt is made to make the budget work when it has been adopted by the committee heads, trustees, deacons, treasurer and pastor. For a budget to provide efficient planning and control four elements must be present.

The budget must be well conceived and have been prepared or approved by the trustees.
The budget must have been broken down into periods corresponding to the periodic financial statements.
Financial statements must be prepared on a timely basis throughout the year and a comparison made to the budget right on the statements.
The church must be prepared to take action where the comparison with the budget indicates a significant deviation. (Gross, 1972, p.278)

The responsibility of establishing a church budget will fall heavily upon the church treasurer, but he will not be solely responsible. The treasurer may be the best person to handle figures, but he is not qualified to make policy decisions. For this reason, trustees, committee heads, deacons, and the pastor must work together. Each person may be assigned to do a cost analysis on a particular part of the budget, then report back to a committee. When the budget committee has adopted a budget, it should be presented to the church for ratification. In essence, the responsibility for establishing an effective budget must be a joint effort of the whole church. The adherence to the budgetary controls should be the responsibility of the church treasurer.

Preparation of a proposed annual budget should begin with an analysis of expected revenue. Some churches prefer to examine budgets of the five previous years and project the next years budget on the basis of the annual percentage average of increases. Both methods are good as a tool of control over disbursements. The important factor in establishing a budget is to organize a list of objectives or goals. These goals should be listed under fixed or variable expenses as well as on the basis of priority. Care should be taken to curb expenses and to eliminate programs that do not warrant their existence. A part-time secretary may be all that is needed instead of a full-time secretary. Ten buses may be running on a Sunday when five buses could do the same job. God wants us to be good stewards with our money. He does not want us to be wasteful. "If therefore ye have not been faithful in the unrighteous mammon, who will commit to your trust the true riches?" ( Luke 16:11) Expenses should be estimated. This will involve intelligent research into previous years actual expenses, gross potential, as well as inflationary and economic factors affecting the church membership. Many churches are in towns where one industry dominates the entire community. A year when unemployment is high or strikes have taken place is a poor year to expect an increase in contributions. The expected expenses will exceed projected costs. In this case some value judgments will have to take place. What programs are most important? Where can costs be reduced? The process of reconciling the expenses and income will have to be done very carefully because in essence the budget represents next year's or next month's financial blueprint. "Possibly one of the most difficult frustrating problems for the pastor of a growing and aggressive church is to control budget expenditures within projected limits." (Dollar, 1974, p. 93) At times, some ministers or department heads just do not have the discipline or feel responsible to stay within budgeted expenditures. Occasionally, unexpected expenditures may arise that may plague the church budget. Some churches may want to handle unwarranted budgetary factors by developing three different proposed budgets: a must budget, an advance budget, and an of interest budget. Church members should be encouraged to give vigorously to God's stewardship program because of His love. Church staff members should be encouraged to maintain established and workable budgetary controls.

Purchasing Controls

Purchase Requisitions

An important part of budgetary controls is the use of purchase requisitions. This control assures that only authorized persons make purchases and encumber church funds. "When the requisition slip is received, it is used to make sure that the good or service is both provided for in the budget and that the account to be charged has an adequate balance remaining. If both conditions are satisfied, then the requisition is approved and a purchase order prepared." (Vargo, "The Church Guide to Internal Controls", 1995, p. 42.) Purchase requisitions should be pre-numbered and adequately accounted for. A good requisition system keeps people from charging goods and services without proper authorization. Secondly, it keeps people from paying for items themselves, and then demanding a receipt or a reimbursement from the church financial secretary. Thirdly, it allows the church to effectively use its budget and to project future expenses. Fourthly, purchase requisitions provide for structure and accountability of legitimate purchases. "Without the use of purchase orders or purchase requisitions, you will always be uncertain as to whether the goods were really ordered." (Vargo, 1995, p. 43)

Purchase Policies

The effectiveness of any internal controls over disbursements can be greatly influenced by the way the church obtains materials for services through its system of purchasing procedures. When we buy for ourselves the objective is to buy an item at the lowest possible price consistent with cost and quality desired. When we buy for others or for our church often our motives are neither logical nor economical. Purchasing for the church should be handled in the most effective way possible in order to protect the best interest of the church. The most responsible purchasing agent will be the person who seeks to buy for the church the right thing, in the right quantity, in the right quality, at the right time, at the right price, from the right vendor. A good system for church purchasing must provide for each of the following elements to insure that each of them is accomplished effectively and systematically. These elements are:

Ascertainment of need: the decision by someone that something is needed.
State the character or quality of the item needed.
Determine if the item is needed.
Seek out possible vendors evaluating them, negotiating with them for acquisition of the goods.
Analyze proposals, final selection of a vendor, and placement of the order.
Follow up the order to insure that shipment was accurate and properly handled.
Receive the item and check the invoice and the purchase requisition
Payment for the goods.
Avoid duplication and waste and obsolescence by reviewing the storage of goods received.
Plan for future purchases. (Feldman, 1964, p. 20-21)

Paid invoice files

After goods and services are received, payment is then made from an invoice from the vendor. The treasurer must ascertain that all the merchandise and services have been satisfactorily received before he approves a payment. Once payment is made the paid invoice is stapled to a duplicate copy of the check and purchase requisition. Together, these items should be filed in an A to Z accordion file. This controlled procedure allows the treasurer or other church authorities to review the authorization, payment and cost of items that are purchased. A separate expandable A to Z accordion file should be used for each fiscal year. These records should be filed away and kept for a minimum of at least five years. These foregoing procedures will protect your church treasurer from unauthorized payments and a wrongful conversion of property that is in his trust to his personal use. "It eliminates such fuzziness which often leads to internal control breakdowns." (Vargo,"Church Treasurer Alert", p. 3, July 1995)

Accounting Controls:

Accurate financial records cannot be kept without a properly defined accounting system fitted to your church. Those churches that use a checkbook balance solely for their records are surely to develop difficulties as the church grows. Accounting is the language of business. It is necessary for the church to interact with the business world. The church accounting system will reveal to the business world, as well as to its members, the areas of interest in the church program. "If a church is vitally interested in work of the kingdom of God, then its financial system must necessarily be good." (Holck, 1961, p. 7) Since the time when Matthew and Zacceaus kept their tax records accounting methods have greatly changed. Today, many churches have adopted the use of computers to keep their financial records up to date.

Safeguarding of Records

One thing that has not changed since Adam is good ethics. Good ethics demand the security of church financial records. The financial records of the church should be kept in a safe place and not readily accessible to all members. The records should be kept in a locked filing cabinet or safe.

Procedures

These records should be kept up to date. Only authorized persons should have access to the church books. Only two or three individuals should be authorized to sign for all bank accounts. This list should also be kept up to date. Blank checks should be kept in a secure place. Never should there be in existence a group of pre-signed blank checks. Most individuals would never consider pre-signing their own checks and leaving the rest blank. Yet, quite often in churches when signers are on vacation, or for the convenience of the staff checks are often pre-signed. Occasionally, some churches may even use a rubber signature stamp which can open wide the door of temptation. The church should require a minimum of two signatures on every check. Anyone given the position of signing the check should carefully examine all supporting documentation and ascertain that the check is properly authorized. These internal controls will also prevent the treasurer from writing a fraudulent check to himself.

The church should always assign someone other than the author of the check to sign the check. Never should one single person have control over financial records, sign the checks, issue monthly financial reports, and reconcile the bank statement. The purpose of this control is to prevent a fraud in the books. A good procedure is to have the bank statements mailed directly to someone other than the one who is responsible for writing the checks. This allows the one balancing the checkbook to verify all checks cancelled and those charges authorized by the bank. He can also verify all deposit slips with all those shown on the bank statement. The treasurer of the congregation should insist on this procedure, although it may be inconvenient. Even if for no other reason, it will prevent any suspicion of wrongdoing and avoid the emotional drain of a wrongful accusation.

Churches with inadequate, messy records show no concern for good financial ethics. Good ethics coupled with clear, easy to understand financial records are necessary in decision making. Plans for seasonal fluctuations in offerings cannot be made from inaccurate and messy records. The same holds true for annual or quarterly expenses. Good ethics, along with up to date records will have already answered some problems that may arise. Good ethics require good records that will aid in comparative financial reporting and forecasting for future needs. Churches should consider issuing a monthly financial report which is essential for intelligent, comparative analysis and informed church members. Complete and accurate records are a means of measuring progress and the analysis of such records is necessary to good church management. It is therefore essential that attention be given to simple clear, fundamental accounting procedures. "(Cashman, 1949, p. 101)

Petty Cash Funds

Often a church will find itself in need of some cash to pay for postage or other small items that may come up during its normal course of business. It is common for some churches to keep as much as $50.00 in a petty cash box to take care of such incidental items or emergency situations when a needy person may unexpectedly come in to the church. The procedure to maintain control over this petty cash necessitates the maintaining of all cash disbursement tickets. When cash is taken out of the petty cash box, a receipt for the proper amount should be returned to the petty cash box. The total of the petty cash box should always equal to the amount allocated for petty cash minus the disbursement receipts. In allocating petty cash expenses to the general ledger, the expenses should be broken down to the appropriate expense categories. Never should there be a large category for miscellaneous or petty cash expenses on the financial statements.

The church should consider putting all of its cash handling procedures into writing. The purpose of this control is to assure continuity in record keeping procedures and to provide an explanation of any petty cash items. Consistency in record keeping and reporting is important means of internal control for the church.

Systematic Reports of Records

Complete and accurate financial reports are a means of measuring progress. An analysis of such reports is necessary to good church management.

Timely Reports

Churches should consider the issues of monthly financial reports. These reports will keep members informed of the needs and expenses of the organization. If the church members are expected to give their tithes and offerings to the church, then they must be informed as to the use of those tithes and offerings. For most Christians, giving of that which is of value to them represents self-discipline and sacrifice. Surely those who give sacrificially are entitled to know how their support is being effectively used to help the church in its growth. Services of worship which inspire men and women to know God in their daily living must be financed; and consequently members who invest in the church program will do so only as they have knowledge and information through timely financial reports.

Adequate Reports

These financial reports must be adequate. Most church treasurers will measure their expenses with the church budget in their financial reporting. This control makes those in charge of the church funds accountable and assures that money is not being spent that is not authorized. It is also advisable that if financial reports are to be adequate, they should be issued not just on a cash basis, but should also report any liabilities or unpaid bills. Through the use of the computer, some churches have even included graphs in their financial reporting. Other churches have included in the financial reporting comparative reports with previous months for previous years to measure the improvement or consistency of the church financial records.

Accurate Reports

The need for accuracy in church financial records cannot be overemphasized. Accuracy is absolutely necessary for efficient operation. It is sad to remark that very few churches will have an annual audit of their books to check their accuracy. Accurate records can keep a church from making a serious mistake. Banks require accurate information about a churches financial situation before making a loan. "Business establishments often require credit ratings and consider churches like any other business firm before charge accounts can be established." (Holk, 1961, p. .8) Adequate and accurate records will immediately supply the information needed.

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