Management & Leadershipin Ministry Local Church Financial Policies & Practices
Church Financial Policies & Practices Every Church needs to have policies and standardized practices, which outline ‘how’ the finances of the church are handled. 1) To protect the church from theft. 2) To protect the reputation of those who physically handle the finances of the church. 3) To give confidence to parishioners, that their contributions are being properly managed. 4) To satisfy the requirements and expectations of the denomination and “Revenue Canada & I.R.S.”
Church Financial Policies & Practices Every Church needs to have … 1) A safe, bolted to the floor OR at least a lockable filing cabinet, OR as a bare minimum, a desk with lockable drawers in the church office. 2) Church accounting should be done at the church office, preferably not from someone’s home. 3) ‘Offering Count’; ‘Payment authorizations forms’ & ‘Church cheques/checks’ all require 2 signatures. 4) Those who count the offerings (offering tellers) should not be related to one-another, and always operating in ‘pairs or threes’.
5) Every church needs a “Finance Committee”. The financial accounting should NEVER be overseen by one person. (Typically the chairperson of this committee is the annually/biannually elected treasurer of the church.)6) Every church needs to have cheques/checks which are numbered sequentially & stored in a secure location.
7) Church Financial management software should only be installed on computers in the church office, not on ‘home computers’ (Buy good software & get training for members of your Financial committee)8) Finance Committee meets monthly to monitor & report the status of church finances (They issue a monthly written report to the Church Board and Sr. Pastor).9) An annual ‘audit or review’ of the books (use an outside accounting firm (A review is usually sufficient not a formal audit)
Finance Committee 6 MembersIdeally a Finance Committee consists of …- Treasurer (elected by church business mtg. Oversees everything; reports monthly to Church Bd.)- Head Offering Teller (min. team of 3 people, max.= ?)- Offering Envelop Secretary (weekly records donors’ individual financial contributions)- Cheque writer (issues cheques/checks to pays bills)- Bank Reconciler (double checks the wkly. offering teller report vs. actual bank deposits; AND double checks payment authorization forms vs. actual cheques written)- Book-keeper/Data entry sect. (enters financial info. into computer)
Physical Handling of church Finances1) Two ‘unrelated’ people always count the ‘offerings’. The data is recorded onto 2 “offering teller” sheets. These offering teller sheets are signed/dated by both people who count the offering. The offering teller sheet records both: the total amount of the donations AND the break-down of which church accounts the offerings were donated to (i.e. how much was donated to the: General Operating Fund; Building Fund, Missions, etc.) Prepare a bank deposit slip.2) Sunday offerings are immediately deposited into the church’s bank account, using the bank’s ‘overnight deposit bag slot’ OR into the church safe. No one is to ever take cash or cheques, home.
Physical Handling of church Finances 3) A copy of the ‘offering teller sheet ’ is given to the church treasurer, and the other copy given to the person who reconciles the monthly bank statement. The empty ‘offering envelops’ are given to the offering envelop/recording secretary. 4) The offering envelop recording secretary keeps a record of the donations made by each person in the church (for income tax receipt purposes). The offering secretary (or bank reconciler) double checks the ‘deposit slips’ against the ‘monthly bank statement’ each month, to ensure that the amount which was counted was actually deposited into the church account/bank.
Physical Handling of church Finances 5) Petty cash that is given to Ministry leaders is recorded as an outgoing expense, and will only be replenished as receipts are provided for ‘how, where, why and when’ the money was distributed. Most Petty cash advances, do not exceed $100-$200. Ministry leaders MUST furnish ‘receipts’ for the usage of their petty cash and ensure that their petty cash is kept in a secure location. 6) Money received mid. week by Ministry leaders (i.e. sale of Sun. school books, or ticket sales, fund-raising events, etc.) must be counted & recorded in duplicate (1 copy to treasurer and 1 copy to ‘offering envelope secretary, if the money is receiptable). Give the money to the church treasurer as quickly as possible, for deposit purposes.
Physical Handling of church Finances 7) As a rule of thumb, the pastoral staff should try to avoid any direct contact with a donation made to the church (i.e. being given a donation for the church while visiting a parishioners home). Just too many things can happen to cause suspicion of ‘what happened to the donation’ … or of ‘influence peddling’. If you are given money, put it in a sealed envelop & have the donor sign the envelop, across the sealed area.
Bill Paying Policies & Practices1) Church cheques/checks require 2 authorized signatures (The Church Board approves up to 4-5 Individuals, who have church cheque signing authority. (Note: their signatures are ‘on file’ at the bank)2) “Payment authorization” forms require 2 signatures (the ministry leader & a supervisor/pastor/ treasurer). Payment authorization forms need to be filled out for both ‘one time’ purchases AND/OR an ‘annual form’ for ongoing, monthly expenses (i.e. utilities, missionary support, etc.)3) The Finance Committee needs to pre-authorize ‘who’ has authority to charge items at a store (Christian bookstore, or Office Supply store, etc.)
Bill Paying Policies & Practices4) The Finance Committee needs to authorize who may have a ‘church credit card’. Those authorized to use the church’s credit card MUST attach their receipts directly onto the monthly Visa Statement, along with an explanation of each purchase. Give the Visa Statement to the treasurer each month.5) Church related expenses will be paid WITHIN 30 days of the purchase.
Reporting Policies & Practices DEFINITIONS: Detailed Report: Line items included (i.e. monthly costs for utilities, photocopying, office supplies, advertising costs, etc.) Lots and lots of detail. Mid. Level Report: List total expenses by ‘ministry department’ (i.e. total monthly expense of the teen ministry, but not every expense spent by the teens) High Level Report: List grand totals (total income vs. expenses by 5 major categories: General Operating Expenses, Missions, Building, Savings/Investments, and Debts/mortgage) A few simplified examples are provided on the following pages
Mid. Level: Teen Ministry September Financial Report Yr.to date Yr. to date September Actual Budget Actual Budgeted Expense Expenses Expenses Diff. Expenses Expenses Diff.Food $35.60 $50.00 +14.40 $356.00 540.00 +184.00Teaching $67.00 $35.00 - 32.00 $875.00 $655.00 -220.00SuppliesGuest $75.00 $75.00 0.00 $250.00 $300.00 +50.00SpeakerAppreciation/ $ 0.00 $15.00 +15.00 $75.00 $250.00 +175.00GiftsRentals/Lease $16.90 $30.00 +13.10 $65.00 $75.00 +10.00 TOTAL: 194.50 205.00 +10.50 $1621.00 $1820.00 +199.00
High Level Bd. Report: General Operating Budget June 1 to Sept. 30, 2012 Sept. Sept. Sept. Yr.-to-Date Yr.-to-Date Yr.-to-date Sept. INCOME Actual Inc. Budget Diff. Actual Inc. Budget Diff. Offerings $6546.00 $7200 -654.00 $25,800.00 $28,100.00 -2,300.00 Investments/ $250.00 $300 -50 $2,100.00 $1,200.00 -900.00 Interest Other (tickets, $350.00 $100 +250 $1,556.00 $200.00 +1356.00 sales) TOTAL INCOME 7146.00 7600.00 -454.00 29,456.00 29,500.00 -44.00 Sept. Sept. Sept. Yr.to date Yr. to date Sept. Expenses Actual Exp. Budget Diff. Actual Exp. Budget Diff. Ministries & $ 350.00 $ 450.00 + 100.00 $1230.00 1600.00 +370.00 outreach Salaries $2400.00 $2400.00 - 0.00 $8750.00 $8750.00 - 0.00 Gen./Office $1950.00 $1850.00 -100.00 $8250.00 $7300.00 - 950.00 Admin. Missions $ 500.00 $650.00 + 150.00 $2100.00 $2500.00 + 400.00 Facilities/ $2400.00 $2400.00 - 0.00 $9500.00 $9600.00 + 100.00 mortgage TOTAL EXPENSE 7,600.00 7,750.00 + 150.00 $29,830.00 $29,750.00 - 80.00 Income/Expense - 454.00 - 150.00 - 304.00 - 374.00 - 250.00 - 36.00
Reporting Policies & Practices1) The Finance committee receives & reviews a detailed financial report from the Treasurer, each month.2) The Church Board receives & reviews a ‘high level’ report each month, from the Finance committee.3) The Congregation receives a weekly report of the income in the church bulletin each Sunday (income vs. anticipated income).4) The Congregation receives a high level financial report, at the annual business meeting … with a detailed report available to those who specifically request one.5) Ministry Leaders receive a monthly Mid. Level or Detailed Report, specific to their ministry expenses.
Reporting Policies6) Church files annual reports with the government and denomination. Prepared by the treasurer, but signed by pastor.7) Typically ‘salaries’ are all grouped together, rather than reporting individual salaries. Due to confidentiality rules, it may be best to report also “salary ranges” for the office/pastoral staff of the church. Senior pastor = $35,000 - $45,000 Assistant pastors = $28,000 - $34,999 Office staff (full time) = $26,000 - $31,000 Office staff (part time) = $10.00 - $12.50 / hr.
Reporting Policies8) Some local churches, annually report the ‘donations’ to the congregation, by showing the breadth of financial support of the church. Thus, the report can look like this: $1 - $99 = 25 donors $100 - $499 = 22 donors $500 - $999 = 34 donors $1000 - $3000 = 17 donors
Investment Policies & Practices see: Matt. 25:27 1) A church should instruct their treasurer to invest ‘excess’ money into ‘instruments’ which … - are easy to liquidate (cash in) i.e. 2 to 4 wks. notice. - have a guaranteed interest rate, rather than a widely fluctuating interest rate (i.e. not high risk). - is invested with a highly reputable investment firm or bank (rather than someone’s friend or uncle). - and the interest from these investments should flow back into the same accounts, from which the investment money came (i.e. interest from building fund money, should go back into the building fund, not the General Operating budget).
Financial Files/Data Storage Policies & Practices 1) All church financial files (paper or electronic) are stored at the church, not in people’s homes, nor on home computers. 2) All financial paper files are kept in a locked filing cabinet & in a secured area of the church (locked room). 3) Church financial data is kept on file for 7 years, then destroyed (requirement of IRS and Revenue Canada). Many churches keep General Ledgers/Salary records much longer than 7 years, for reference purposes. 4) No personal/donor information will be shared with any other organization (except as required by the government and/or the denomination). 5) Only the lead pastor & finance committee members have access to data about individual donors/donations
Tracking Income/ Expenses Policies1) Generally speaking it is far superior & safer to have all income flow through one treasurer and one set of books, than through multiple people and the financial books of various ministries. The only way to accomplish this, is for all ministries to be financially supported through the “General Operating Fund” of the church, rather than each ministry trying to be self-funding/ managed.2) The exceptions to this rule: Donations tend to be greater for “Building Projects” and “Missions” if the income and expenses can be tracked in separate accounts.
Tracking Income/ Expenses Policies 3) Special Projects: It is easier to generate income for ‘special / specific projects’ than for the “General Operating Fund” (raising money for the purchase of a new church piano, or equipment for the Nursery). Those donations should tracked separately, but still flow through the “General Operating Fund”. It is very important that the congregation be told ‘up front’ that: Income received in excess of the monies needed for a special project, will be used to cover other church- related expenses.
Receipting Policies & Practices Revenue Canada & I.R.S. require that: - A verifiable and clear paper trail must exists between a donor and their donations to the charity (i.e. you can not issue a ‘charitable donation’ receipt, based on the word of a donor that they put a $20 bill into the offering plate). There must be either a canceled cheque or a dated and marked ‘offering envelop’ to prove the donation. - A donor can not ‘direct’ how their donation will be used by the charity. Donations must be freely made, and then fully released for the charity to decide how and when it is used. (i.e. a person can not donate $1000 and tell the church to use it to buy a chair). The church must first decide that it needs ‘chairs’ and then donors can contribute towards that expense.
Receipting Policies & Practices Revenue Canada/ I.R.S. require that: - A donor can not receive a charitable donation receipt for a donation they made to the church IF they specifically benefited by that donation, for example: no income tax receipt can be issued for purchasing a ticket to a dinner meal … unless the receipt is for the difference between the ‘cost of the meal’ and the value of the ticket (i.e. Ticket costs $25. Meal & entertainment actually costs the church $12/person. Receipt can be issued for $13.). - Likewise a parent can not make a receiptable donation to a church in support of a scholarship that their child is the sole beneficiary of that scholarship. Donors can not identify a specific beneficiary (person) for their donation.
Receipting Policies & Practices Revenue Canada/I.R.S. require that: - A donor can not receive a charitable donation receipt for the ‘value’ of an item or service that has not been independently substantiated (i.e. donation of a t.v. … the church needs to have an independent verification of the ‘value’ of that t.v. in order to provide a receipt). - A church should not issue an charitable donation receipt for ‘services rendered’ (i.e. Electrician/ Plumber). Pay the person for their services. If the person wants to write the church a cheque for an equal amount, this satisfies Revenue Canada. BUT the donation must be freely given, not coerced.
Borrowing Policies & Practices a. The Rule of Thumb is … a church should not borrow any more than 3 to 4 times its annual income level. b. It is a VERY bad idea to lend money from one church account, to another account. Some experts advise it is actually an illegal activity to borrow money from the Building Fund, to pay General Operating expenses, unless you have received congregational approval to do this (you are using donor monies, other than for the purpose for which they donated it). If you borrow money internally, there MUST always be a reasonable plan to repay the money, with INTEREST, in very short order.
Borrowing Policies & Practices c. Before taking a bank loan, try to borrow from... - people inside the church (perhaps ‘interest free’, or for a lower interest rate) - the denomination (Wesleyan Investment Foundation or the district office, etc.) d. Borrow only for the purchase of assets which typically appreciate in value, or for mission critical repairs (emergency furnace repair), not for bills related to normal operating expenses, such as salaries. e. The church should always aim to repay loans on or before the scheduled due date, both for the purposes of a good witness, and good stewardship.
Financial Data Input/Access Policies a. Electronic church financial records should be backed-up daily and a copy stored off site (i.e. secretary takes copy home each evening or electronically stored in a ‘cloud site’). b. One computer is used to input and update church financial data. At least 2 people (but not more than 3) are fully trained to input and update information. This computer is ‘password’ protected and kept in a lockable room. c. Access to the church financial records is restricted to a ‘need to know’ basis ...especially information related to donors and donations
Financial Data Input/Access Policies d. In larger churches, the I.T. person can set up controls so that ministry leaders can access their own ministry’s actual year-to-date expense report vs. budget …by means of ‘networking’ the church computers. e. The church’s financial computer should not be connected to the internet (virus, spam, hacking, etc.)
Rebate & Fund-Raising Policies a. The church relies upon the Biblical principles of Christian stewardship as the primary means of funding the ministries of the local church. While most evangelical churches would not use ‘bingos, gambling & lotteries’ as a legitimate means of fund-raising; most evangelical churches are not opposed to using ‘funding raising’ events to supplement the ministries of the church where the donor receives ‘value’ for their donations (i.e. bake sales, car washes, etc.) b. The church will annually apply for all appropriate government rebates (i.e. GST, PST) and use their tax exempt status for reducing the cost of purchases for ‘worship expenses’. This is good stewardship.
Rebate & Fund-Raising Policies c. The church will also avail itself of government monies which are available to fund such things as ‘handicap access’ improvements, and underwriting the hiring of summer students, etc. The church however will not accept government money, which allows the government to adversely dictate/influence/compromise the ministries of the church.