Honest Financial Church Policies
By: David R. Pollock

You know you have problems with your church's finances when:

• The January Financial Report comes out in March.
• No one is really sure how much money is in the Building Fund.
• Checks for missionary support arrive after the missionaries have retired.
• The annual budget doesn't resemble reality (Actual versus Budget are miles apart!).
• After the Annual Business Meeting, the financial reports are found folded into paper airplanes and lying on the floor.
• There is so little confidence in the handling of church funds that people use their tithe envelopes for coffee cup coasters.

As lighthearted as some of these "problems" may sound, many churches experience difficulties in the financial realm that are not so funny.

Even if your church isn't having problems, perhaps it would be a good idea to examine the way you do things. To use medical metaphors, perhaps it's time for surgery followed by a close monitoring of the patient--keeping a finger on the pulse!

The Right Perspective
When approaching the subject of money within the context of a church, the operative word is "integrity." The Bible is quite clear on the need to be honest and forthright in financial matters, and so is the government. There is also the potential of the church's testimony to an unbelieving world. The way a church handles its finances can present positive or negative witness to those outside the church. Does the church care for its people the way it cares for its money? Are the leaders sloppy, not concerned with details, or downright unconcerned?

The Right People
The best approach to take when there is a desire to demonstrate concern in financial areas is to select good, qualified people to be the caretakers of the funds. Just as you would investigate the background and qualifications of a prospective employee, financial "stewards" also should be evaluated.

• Are they technically qualified?
• Are their personal finances in order?
• Do they have the correct motive for serving in a particular position?
• Do they understand the difference between being an "owner" and a "manager?" (Do they accept the fact that as a manager, funds are entrusted to them for safekeeping?)

The best policies in the world simply won't work without the cooperation of the right people. A good principle to follow when placing people into positions of financial responsibility is to focus your attention on "character."

The Right Process
Good people need the right policies and procedures. They should include some sort of "internal audit" process. In order to achieve a level of confidence in these matters, leaders need to be assured these areas are adequately covered. Even if the church is small, there should be a simple "audit" type system. To that end, there are three questions those in leadership should be asking:

• How is the goal of internal control, a system of checks and balances, being handled?
• Can we reasonably expect the current procedures we have in place in our church to work?
• Do we have adequate methods of monitoring our finances to the point where irregularities can be spotted? In other words, how long would it take to spot embezzlement? One week, one month, one year?

To answer these questions with a certain degree of assurance, more specific and precise questions about the financial processes of the church should be asked.

Financial Statements

• Are monthly financial statements prepared on a timely basis and submitted to the proper church board?
• Do the financial statements include all funds (unrestricted, temporarily restricted, and permanently restricted)?
• Do the financial statements include a statement of financial condition and statement of activity?
• Are account balances in the financial records reconciled with amounts presented in financial reports?

General Handling of Cash

• Are cash handling procedures in writing?
• Has the bank been notified to never cash checks payable to the church?
• Are Sunday school offerings properly recorded and delivered to the money counters?
• Are procedures established to care for offerings and monies delivered or mailed to the church office between Sundays?

Offering Counting

• Are at least two members of the counting committee present when offerings are counted? (The persons counting the money should not include a pastor of the church or the church treasurer.)
• Do money counters verify that the contents of the offering envelope are identical to the amounts written on the outside of the envelopes?
• Are all checks stamped with a restrictive endorsement stamp immediately after the offering envelopes contents are verified?
• Are money counters rotated so the same people are not handling the funds each week?
• Are donor-restricted funds properly identified during the process of counting offerings?

Depositing of Funds

• Are two of the people who counted the money in custody of it until it is deposited in the bank, placed in a night depository or the church's safe?
• Are all funds promptly deposited? Compare offering and other receipt records with bank deposits.
• Are all receipts deposited intact? Receipts should not be used to pay cash expenses.

Restricted Funds

• Are donations for restricted purposes properly recorded in the accounting records?
• Are restricted funds held for the intended purpose(s) and not spent on operating needs?

Donation Records/Receipting

• Are individual donor records kept as a basis to provide donor acknowledgments for all single contributions of $250 or more?
• If no goods or services were provided (other than intangible religious benefits) in exchange for a gift, does the receipt include a statement to this effect?
• If goods or services (other than intangible religious benefits) were provided in exchange for a gift, does the receipt a) inform the donor that the amount of the contribution that is deductible for federal income tax purposes is limited to the excess of the amount of any money and the value of any property contributed by the donor over the value of the goods and services provided by the organization, and (b) provide the donor with a good faith estimate of the value of such goods and services?
• Are the donations traced for a selected period of time from the weekly counting sheets to the donor records for audit purposes?

Cash Disbursements

• Are all disbursements paid by check, except for minor expenditures paid through the petty cash fund?
• Is written documentation available to support all disbursements?
• If a petty cash fund is used, are vouchers prepared for each disbursement from the fund?
• Are pre-numbered checks used? Account for all the check numbers including voided checks.

Petty Cash Funds

Is a petty cash fund used for disbursements of a small amount? If so, is the fund periodically reconciled and replenished based on proper documentation of the cash expenditure?

Bank Statement Reconciliation

• Are written bank reconciliations prepared on a timely basis?
• Are there any checks that have been outstanding over three months?
• Are there any unusual transactions in the bank statement immediately following year-end?

Savings and Investment Accounts

Are all savings and investment accounts recorded in the financial records?

The Right Procedure
In addition to policies that ensure checks and balances and the proper accounting of funds, there should also be a weekly procedure established to monitor the flow of funds. This could take the form of a "Flash Report" that would be issued each Monday afternoon (once the weekend offerings are fully accounted for).

The purpose of this type of report is twofold. First, it creates a system whereby the accounting procedures are monitored closely on a weekly basis in order to meet a predetermined deadline. A church with sloppy bookkeeping procedures will be hard pressed to produce a Flash Report on a timely and accurate basis.

The second purpose is to provide the financial leaders with the necessary financial information in order to make an informed decision. If the church uses a volunteer treasurer, these facts could be made available for review on Sunday. Otherwise, the report should be made available by Friday afternoon for whoever needs to review it.

The Flash Report is actually made up of two sections. The first section is a brief summary of contributions, accounts payable, and bank balances. The income portion shows totals from all sources of income (includes sales of any goods, i.e., books, tapes, etc.), revenue from paying events (banquets, camp registrations, etc.), rental fees, bank interest income, and tithes and offerings. All sources are listed because they will then be applied to the church's bills.

Major, active bank account balances are also displayed. These are reported on either a weekly basis as indicated above, or on a month-end closing basis, which is noted below.

The second section is a very brief assessment of the contributions. Some church financial leaders realize the importance of broad-based support for a ministry. If the donations decrease in number, it could indicate either one of two factors are at work: there may be fewer people giving more money, or not as many people giving the same amount.

In order to provide oversight of church finances with a comfortable level of confidence, there are five key concepts to keep in mind.

• Good accounting records and good stewardship go hand in hand.
• Your organization is the trustee of the money it receives-handle it carefully.
• Tailor meaningful financial statements for your organization.
• Prepare timely financial reports covering all your funds-not just the operating fund.
• An annual audit-either external or internal-is a must.

The Right Prognosis
When the best people available are working in the finance area along with sound and reasonable policies and procedures, you can expect certain results to take place. You can expect the reports to be accurate (no more paper airplanes!). You can expect an increase in the confidence and comfort level of your donors. And most of all, you can expect a "job well done" from God when His resources are being taken care of the right way.

David Pollock is the director of Resource Ministries, Inc., a non-profit consulting firm specializing in church administration.