How can we protect our church’s financial accountability?


February 01, 2013

Over the last few years, the annual financial audit of the Minnesota Conference has become more rigorous. It used to be that the auditors would conduct thorough account analyses and review bank reconciliations and general ledger schedules. They still make sure that the numbers on the financial statement “present fairly, in all material respects,” our financial position.

These days, they also spend considerable time reviewing our processes of internal control. We provide written descriptions of our processes for payroll, accounts payable, accounts receivable, secure storage of records and information, and much more. They focus intensely on our computer processes, such as how complex our passwords are, how often they must be changed, how we control access to the accounting software, and so on. It’s no longer enough just to provide schedules of checks written or deposits made. The auditors also examine our process documentation and whether we consistently follow our processes. This helps ensure that the numbers in our financial statements accurately represent our financial picture and demonstrate good stewardship.

No matter how large or small your church is, reviewing your internal control processes is important. Here are just a few of the basic processes every church should follow to protect their finances, ensure trust, and exercise good stewardship.

  1. At least two unrelated people count the offering; deposit checks and cash as soon as possible.
  2. Maintain property inventories (real estate, furniture, fixtures, computers, pianos, organs, etc.).
  3. Safeguard valuables, including blank checks.
  4. Appropriately separate duties. For example: financial secretary and treasurer should be two unrelated persons; the person who writes checks should not reconcile bank accounts; larger checks should require two signers; substitutes should be trained to follow processes while those who hold these positions are on vacation.
  5. Report finances to the finance committee in a timely and accurate manner, with comparisons to the approved budget and other documents, such bills from vendors or remittance statements from the conference finance office. For example, if the treasurer reports that apportionment checks have been written but they are held in a desk drawer for several months, then the church’s financial statements showing the amount of apportionments paid will be inaccurate.
  6. Finance committee should receive documentation of timely payment of federal and state payroll taxes and withholdings. Again, if checks are prepared and held, then the church’s income and expense statement is not accurate. (Furthermore, there are severe penalties for non-payment of payroll taxes.)
  7. Financial records should be maintained according to an appropriate records retention schedule.

These processes provide appropriate checks and balances, reduce the opportunity for theft or embezzlement, protect from distrust those in your church who are charged with financial responsibility, build trust and confidence with donors; and establish consistent financial practices that continue through turnover in staff and volunteers.

To put these practices in place, start with a quick assessment of your church’s current practices and determine which ones are up to par or need work. The work may seem daunting, but don’t be discouraged—pat yourself on the back for every “OK” process you have and get started on the “needs work” or “no process in place” items. Maybe you can team with another church in your town or area and work together on some of the processes.

You may find an accountant or bookkeeper in your church who may choose not to assume a long-term role but would be glad to provide guidance in preparing and improving processes.

Barbara Carroll is director of finance and administration for the Minnesota Annual Conference.

 

Resources

The United Methodist Book of Discipline ¶258.4

The Local Church Audit Guide (download from “Forms and Resources” at gcfa.org)

Guidelines for Managing Records of the Annual Conference and Local Church (download from “List of Publications” at gcah.org)

Finance—Handling God’s Money in the Church (part of Abingdon’s “Guidelines for Leading Your Congregation, 2013-2016” series)

United Methodist Church Financial Records Handbook 2013-2016 (Cokesbury)

Ask your insurance company for crime protection recommendations




Minnesota Annual Conference of the United Methodist Church

122 West Franklin Avenue, Suite 400 Minneapolis, MN 55404

info@minnesotaumc.org

(612) 870-0058