church financial stewardship

3 Tips to Prevent Financial Fraud at Church

In 2017, authorities charged a former church employee with embezzling over $300,000. Authorities alleged the former financial secretary charged church credit cards to make personal purchases and used church funds to pay her own personal debts.  This is a reminder of why we need controls to prevent fraud and steward the money God entrusts to our churches. I don’t know the leaders of the church involved, so I don’t know what controls they had at that time. However, here are a few simple steps you can take to reduce the risk of this happening at your church: Tip #1: The person authorized to make credit card charges should not reconcile credit card statements This is referred to as “segregation of duties.” If I have a church credit card (or access to them) and I’m also the sole person who reconciles those statements each month, it would be easy for me to make fraudulent charges without anyone noticing. Don’t leave that temptation in front of someone or expose your church to that level of risk.  Instead, divide responsibilities. Have someone without access to church credit cards be responsible for reviewing monthly statements and monitoring charges. Tip #2: Consider outsourcing By hiring an outside company to reconcile the accounting records each month, you increase the chances of catching fraud.  This is how the church in the story mentioned above found out about the embezzlement. The outsourcing company shouldn’t have direct access to your church’s bank or credit card accounts. They should be responsible for entering transactions into your church’s accounting software and/or handling monthly reconciliations and reports. Tip #3: Separate Accounts Payable Functions The person who enters vendors into the accounting software shouldn’t be able to enter invoices or print checks. Again, this goes back to “segregation of duties.” Here’s the scenario: You can set up security rights within an accounting system to divide responsibilities. This enables you to keep Joe from creating a new vendor, entering an invoice, and cutting a check to pay that fake invoice.  If you don’t have enough staff members to separate responsibilities to this level, you have a couple of options:  These aren’t the only internal controls you should have at your church, but they’re a good start.  When people trust you with their tithes and offerings, they trust you to use and guard that money wisely. Invest the time now to put proper internal controls into place. Otherwise, you may be forced to invest time later into gathering evidence to prove fraud and deal with the aftermath at your church. Prevention is much less expensive (both financially and from a trust perspective) in the long run.

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9 Key Questions to Ask Potential Church Accounting Outsourcing Providers

Leading a church involves all we typically think of as “pastoral” work plus a plethora of behind-the-scenes tasks.  One significant responsibility of church leadership is to be an excellent steward of church finances.  As people tithe, they’re trusting the church to use that money wisely.  To make that happen, you need strong financial controls and processes in place.  While many churches may hire someone to handle the accounting functions in-house, another option is to hire an outsourcing company.    Why should a church consider outsourcing? Reason #1: Expertise If you hire an outsourcing company that works with several churches, you’ll benefit from that breadth of experience.  They can tell you what’s worked for other churches in setting up restricted funds, establishing an annual budgeting process, and how to generate financial reports for lenders.  You may also be able to leverage the knowledge of CPAs along with having someone handle the day-to-day bookkeeping. Reason #2: Reduced fraud risk Unfortunately, churches aren’t immune to theft.  There are several examples of employees stealing from the church.  One way outsourcing can help prevent theft is by ensuring segregation of duties.  For example, an outsourcing company will have processes that require that the person who can create a new vendor within the accounting software is not also able to approve an invoice for payment or sign a check.  This keeps an individual from creating a new (fake) vendor, entering a fake invoice, approving it for payment, then signing a check to pay that invoice. Reason #3: Increased focus on finances Let’s face it – there are many instances in the schedule of a church where it’s “all hands on deck.”  Every staff member, regardless of function, gets pulled into finishing up Christmas decorations or setting up for an event.  When an outsourcer handles the accounting functions, you’re able to focus on church finances no matter what you’re dealing with at the church. Before you hire an outsourcing company to handle your church’s accounting, take the time needed to evaluate potential vendors carefully.  Here are several questions to ask potential outsourcers: Question #1: Does your company focus on serving the church? The accounting rules and processes for churches are different from for-profit businesses and even nonprofit organizations. You want an outsourcer with several years of experience working with and for churches.  Question #2: Do you have church clients of a similar size as ours? If an outsourcer only works with mega churches and yours averages 200 on a Sunday, that won’t be a good fit. A company that works with a variety of church sizes and structures should have the experience necessary to provide your leadership team with the financial reports and support required. Question #3: How long have you been in business? A company that’s been in business for several years will have references and a proven track record of how they serve their clients. While newer businesses can offer excellent service, they will require even more due diligence in the selection process than one with a long history of serving churches. Question #4: What are the qualifications of your staff members? An outsourcing vendor where most employees have an accounting degree plus several years of experience is a great place to start. You’ll also want to ask about their review processes to see if a CPA reviews certain reports or transactions to confirm that their staff completed their work accurately. Question #5: What accounting software do you use? This goes to discovering whether a vendor will require your church staff to use the accounting software the vendor uses or not. If you’ve already invested a significant amount of time and money into your current accounting system, that could be a deciding factor for one vendor versus another. Question #6: How will our team and yours transmit financial information? Depending on the tasks you’re outsourcing, you’ll need to provide the outsourcer with financial data such as invoices, purchase orders, bank statements, payroll changes, and more. The outsourcer will need to provide your team with financial information as well. Ideally, you’re both able to access the accounting software to transmit most of that information. Find out if a potential outsourcing company has a secure online portal to share financial data and documents as well. Question #7: How do you keep your client’s financial records secure? Financial information is sensitive data and needs to be treated as such. Hacking and data theft are real risks, so you’ll want to look for a company that takes prudent steps to protect their client’s data. Ask about their protocols and processes to secure data online and to keep any paper records secure as well. Question #8: What does your new client on-boarding process look like? The answer to this question can help you gauge how detailed and intentional a company is when it comes to getting new customers up and running. Most companies should have a questionnaire for you to fill out, a standard checklist that they complete with every church client, and likely a series of working sessions to ensure a successful start. Question #9: What financial reports will you provide and at what frequency?  You’ll want at least the standard monthly reports to help you analyze the church’s financial health and progress. However, a vendor might also provide weekly reports on giving totals, cash flow projections, and other key metrics that can help your leadership team make informed decisions. Entrusting an outside organization to handle the day-to-day accounting functions of your church can be a daunting prospect. However, outsourcing can free up time to focus on other areas, ensure proper financial processes, and reduce fraud risk. If you’re considering outsourcing, take your time to find the best vendor for your church and establish an excellent relationship from the start.

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How to Budget for Church Events in 3 Easy Steps

Part of your responsibilities as a church leader is to be an excellent steward of church finances. Events tend to be a significant portion of church ministry. Therefore, it makes sense to budget for church events and monitor them closely. Here are three easy steps to budget for church events and keep your ministry on track for the year.  Step #1: Determine What Events You’ll Host This Year In a recent blog post, I mentioned the importance of planning church events a year in advance. The first step to planning in advance is to determine early which events to host throughout the year. Facilitate a meeting with church staff and put all potential events on a large wall calendar (erasable is best). This is a great visual that helps you see what the year might look like. Next, host a follow-up team meeting to review the calendar with department leaders, the Executive Pastor, and the Senior Pastor. Discuss potential workload issues for your staff as well as budgets for each event, which leads us into Step #2. Step #2: Create a Budget for Each Church Event  Next, you’ll need to create a budget for each individual event. Here’s a list of items you should account for when creating a detailed budget:  Step #3: Review the Budget Depending on how your church handles the annual budgeting process, budgets for events may roll up into each department’s budget for the year. Regardless of how this is handled, you should review each church event budget before approving the event to take place. If an event is too costly, you can likely scale it back instead of canceling it altogether. That’s why reviewing is such an important step in the budgeting process. Church event planning can quickly get out of hand if there isn’t a clear process. To help you stay focused, shortcut the budgeting process with this Event Budgeting Template (see below).

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7 Tips for Stewarding Church Finances

As people tithe and give, they’re trusting church leaders to use that money wisely. To maintain excellent stewardship of church finances, you need well-defined policies and internal controls in-place. These practices can greatly reduce the likelihood of financial fraud and increase wise usage of church funds. #1: Always have at least three people present while counting the offering Although text-to-give and online giving are increasing in popularity, many people continue to give via cash or checks. If you have three or more individuals present while counting the offering, it’s much harder for any one person to steal from the congregation. #2: Establish levels of financial authority Determine, document, and communicate who has authority to do the following: For each of these scenarios, it’s wise to have more than one unrelated person involved in these processes. This policy protects the church from individuals working together to commit fraud and those with the authority from unwarranted accusations. #3: Define and document a benevolence request process Benevolence requests pull at our heartstrings, making it difficult to offer an objective response. To ensure fair treatment and good stewardship of church finances, you should develop a standard method for processing such requests. This should include a request form, specific criteria for why a request would be approved or disapproved, how the money will be dispersed, who has authority to approve the requests, and how the request will be documented from start to finish. #4: Develop a budget A budget is a plan for how the church will allocate the money God (and the congregation) entrusts to leadership. Each ministry department leader should propose what he/she wants to accomplish in the upcoming year and what funds they’ll need for that effort. Consolidate these requests and take the overall budget through the church’s review and approval process. You’ll likely need to do a few iterations before finalizing the budget for the upcoming year. #5: Review church finances monthly The senior pastor, executive pastor, and leader of each department should review financial reports such as budget vs. actuals for each ministry area on a monthly basis. Departmental leaders should explain any significant variances. This report should also be reviewed with the board, elders, and/or deacons. #6: Request an external audit Hire a neutral third party to audit the church’s accounting records annually and provide their findings to the senior pastor, board, elders, and deacons. This brings in unbiased experts to provide their opinion regarding how your accounting team is performing and the effectiveness of your accounting processes and policies. This process also provides another layer of accountability. Consider providing the results of this audit in an annual report to the congregation. #7: Hire experienced accounting personnel Hiring a member of the congregation to oversee your finance office due to a family relationship and the individual’s willingness to take a pay cut isn’t wise. You can’t afford to have church finances poorly managed, so invest in a qualified individual who has years of proven accounting experience. If you can hire a CPA, that’s great. If not, at least hire someone with an accounting degree and 5+ years of experience (with great references and a clear background check). Also, outsourcing tasks that require more experienced staff could be a more economical option.  Then have a CPA review your financial records at least annually. As your congregation entrusts you with their tithes and offerings, take these steps to ensure those finances are spent effectively and with integrity. It’s easy to overlook the back-office processes since they don’t immediately look like ministry. However, maintaining the trust of your congregation and the community is a foundation upon which you build ministry.

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