finances

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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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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