Why the Church’s Financials should be Auditable?

Many churches try their best to do everything right and succeed every day in their mission(s). There is one area in the church that can be detrimental even if the best intentions were meant – the church’s books. Once a church loses the trust in the congregation and/or community their reputation as being a trustworthy organization is tarnished for a very long time. This is why using the proper accounting software, techniques, and having the right people are essential to ensure the church’s overall mission is not tarnished in anyway.

The first reason why the church’s books should be open and auditable is simply to protect the church. Let’s face it, in today’s world when there is mass corruption on Wall Street and even on Main Street USA no one is above temptation. It is best to have the books opened to ensure there are more “eyes” on it than in other industry sectors. It also conveys to the people that the church is open and that they do not tolerate any type of wrong doing behind closed doors.

Following guidelines is an important consideration in the accounting and contribution areas of the church. As many churches already know they must provide a statement of donations to their members in accordance to the IRS publication 526. A side note about this publication in that every church should print this out and have a hard copy in their office for reference.

One guideline that may not be well known is the FAS 95 and 117 which describes the GAAP (Generally Accepted Accounting Principles) for non-profits (term variation -> not-for-profits). These guidelines state that every organization should be able to produce a minimum of 3 different financial statements. They are called Statement of Financial Position, Statement of Financial Activities, and Statement of Cash Flow. These reports are more commonly known as Balance Sheet, Profit & Loss and Cash Flow Statement.  The guidelines instruct that the financial statements should be broken up by Restricted, Unrestricted, and Temporarily Restricted. Additionally, we suggest that the reports show the various funds by themselves to better illustrate how much is left in each fund to spend or its shortage.

Good stewardship should go without saying but it is worth mentioning. Being good stewards in all that is provided not only to the church but in our own lives should be a role model that every person strives to become better in.  Showing good stewardship to the congregation as a whole is important so that trust is built up within the church. Another benefit that may not be so apparent: when a relationship that is built on trust evolves people tend to give more when they have trust that the resources are being used appropriately.

Internal and external controls should be implemented by any organization that is handling financial records. Some internal controls are a separation of duties, multiple counters, auditable software, position changes for board members and volunteers, and internal reviews. A common example would be a team of money counters that count the money every Sunday; however they are not the same people that deposit the money to the bank. They provide a grand total to the person(s) that does the deposit which ensures their grand total matches what the financial institution says is in the deposit. One of the better external controls to have is an auditor that understands fund accounting come in and audit the church’s books. Keep in mind an auditor does not have to have a CPA license to become an auditor and the only requirement is an undergraduate degree. There are certain designations that some auditors may have like the following list. It may be best to know what the auditor’s certification is so the church makes an informed decision.

  • Certified Internal Auditor (CIA)
  • Certification in Control Self-Assessment (CCSA)
  • Certified Government Auditing Professional (CGAP)
  • Certified Financial Services Auditor (CFSA)

A clear understanding is revealed why a church’s financials should be auditable in today’s society more than ever. With the right people leading the organization, software that is auditable, and implementing other methods as described here can protect the church and its mission.

Bill Gifford
Icon Systems, Inc.

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