CHURCH FINANCIAL/AUDIT GUIDELINES
Sound financial controls
and audit procedures protect the church against fund loss, misappropriation, and/or
error. They also protect the reputations of both the church and those responsible
for financial matters.
Sound Financial Controls
– A Reasonable Checks & Balances System
¨ Financial
responsibilities should be divided between 2 or more knowledgeable, trustworthy
people, who have been members in good standing for a number of years and are
not experiencing either personal or business financial crisis.
¨ Adequate separation of
duties should, at a minimum, insure that the person or people keeping the
church financial records, signing checks, and/or reconciling the bank accounts
are not the same people as (or closely related/affiliated to/with) those who count the offerings and make the
deposits, or (of course) those who conduct the financial audits.
¨ Responsibility for
counting the offerings and making deposits should always
be handled by at least two unrelated individuals and
preferably by rotating teams of 3 or more individuals.
¨ The collection/deposit
system should include: safeguard of funds between collection, counting, and
deposit (deposit on the same day as collection is preferred); a protected area
for counting; a form (in duplicate or triplicate) to record and report collections
sent (along with deposit slip copy) to responsible party/parties other than
those counting/making the deposits.
¨ Periodic (quarterly is
preferred) statements should be sent to donors detailing dates and amounts
received, with discrepancies, if any, resolved immediately.
¨ Regardless of size, every
church ought to have an annual budget, which is approved by the board,
congregation, or both.
¨ Church accounting records
should be orderly, legible, and maintained in a standard format with accounts
updated regularly. Data should be easily
and logically transferable into monthly and year to date financial statement
format (a standard computer accounting software package is preferable).
¨ Timely financial reports
should be prepared monthly and be available for review by the board and/or
others responsible. Detail should be sufficient to quickly assess whether
expenditures are appropriate; to determine whether receipts are covering
expenditures; and to track both cash and investment balances and any church
indebtedness.
¨ Standard procedures
should be in place and followed to document and approve all expenditures.
¨ Petty cash should be kept
to a minimum (under the control of one individual) and expenditures from petty
cash well documented (maintenance of a ledger recommended).
¨ Reimbursements should
require completion of an expense reimbursement form with appropriate
documentation attached, and payment should be made by church check (never taken
out of cash receipts).
¨ If internal expertise is
not available, an outside payroll service should be used.
Internal Audit Procedures
¨ Review compliance with
financial control procedures, including timeliness.
¨ Verify cash balances on
the year end financial statements are the same as in the accounting records and
reconcile with the year end bank statements.
¨ Reconcile year end
accounting records and financial statements with those for the previous year
end.
- Verify that
the total of receipts per accounting records, financial statements, bank statements,
and donor records are the same (or are easily reconcilable, with any adjustments
being well documented and sensible).
- Reconcile
year end cash to cash at the previous year end (i.e. Do cash balances for the
latest year end equal cash balances for last year end plus receipts for this
year less expenditures for this year?).
Note: any adjustments (i.e. for inter-fund transfers, etc.) should be
well documented, verifiable, and meet the test of reasonableness.
- Reconcile
contractual indebtedness balances.
¨ Select December and 1 or
2 other months (at random), and a sample (12-25) of checks from the remaining
months (include the largest amounts and a random sample of other checks),
reviewing all accounting entries and back up documentation to test:
- accuracy (i.e. compare payees
and amounts on cancelled checks with payees and amounts shown in the accounting
records, and verify appropriateness of expense category in the accounting records
and on the financial statements);
- reasonableness (vendor/payee, and expenditure type and
amount seem appropriate);
- proper approval;
- to
determine whether bills (i.e. utilities, vendors, lease, bank/financial
institution indebtedness) are being paid on time and recorded in the proper
month on financials (i.e. make sure checks clear within a reasonable time
period and aren’t being held for payment later than check date);
- to make
sure bills are not being held over to future months for recording to make the books
appear in balance (particularly at year end) when, in reality, the church is building
unrecorded payables.
¨
Review a sample (12-25) of year-end donor records
(include the ½ dozen or so largest records and a random sample of others),
reviewing all accounting entries and backup documentation to test for accuracy,
reasonableness, and compliance with donor wishes.
¨
Review payroll records for:
-
accuracy, reasonableness, and proper approval.
- timely,
appropriate reporting and payment of
withholding taxes.
¨ Review such other project
accounting or miscellaneous transactions as may seem appropriate (i.e., building
construction, special projects, larger miscellaneous expense categories, etc.)
for accuracy, reasonableness, and proper approval.
¨
Review to determine appropriate, approved insurances are
paid and in force.
Summary Comment
Every church is
different. One size does not fit all. As a result, some modification or
adaptation of the above guidelines may be required to help them fit. However, in all cases:
¨ The rule should be that
appropriate checks & balances are developed and maintained.
¨ Local financial control
and audit procedures should be documented in writing, sufficiently detailing
each step in the process (i.e. where money should be counted; where money
should be kept between counting and depositing it at the bank; the form,
including detail required, to be completed by the counters; etc.)
¨ Written procedures should
be reviewed by the church board, at least annually, to insure both compliance
and continued appropriateness.
Michigan Missionary Loans &
Investments, Inc.
1091 Creekwood Trail
Phone: (810) 742-7462 Fax: (810)742-8102
E- Mail: michdistmc@aol.com
mmli@sbcglobal.net