Financial Environment

What are our goals?

Avoid Fraud
Many ways to destroy the trust between the congregation and the leadership of the church—but financial mismanagement is a big one. Many churches do not give this area of ministry the appropriate attention. 
• use volunteers that do not have the appropriate training
• the misperception that the government will never pay any attention
• mimic the practices of other churches without proper verification of correctness

Fulfill our Fiduciary Responsibility
As leaders in the church we have a fiduciary responsibility (the highest standard of care imposed at either equity or law) with regard for handling finances appropriately.

Effective Management
In order that the congregation will have confidence in church management.

Effective Communication
When done well, the congregation gains a greater understanding of the financial position of the church, the link between finances and ministry, and their own role in the ministry.

Shared Vision
Congregants understand and can support our vision and our direction.

The Guiding Principle: Being Above Reproach
“What is more, he was chosen by the churches to accompany us as we carry the offering, which we administer in order to honor the Lord himself and to show our eagerness to help. We want to avoid any criticism of the way we administer this liberal gift. For we are taking pains to do what is right, not only in the eyes of the Lord but also in the eyes of men. “ 2 Cor. 8:19-21

Helpful Resources:
Evangelical Council for Financial Accountability (ECFA)
Seven Standards of Responsible Stewardship
The Donor's Bill of Rights

Financial Weaknesses in the Church (ECFA)

1. Lack of executive committee minutes
2. 
   Unclear if quorum present
3. 
   Audit Review Committee not functioning
4. 
   Conflicts of Interest 
5. 
   Poor Financial Statements/allocation of expenses
6. 
   Poor CEO Appraisal/Compensation Review
7. 
   Borrowing From Restricted Funds Without Plans for Repayment
8. 
   Misuse of Donor-Restricted Funds
9. 
   Housing Allowance Improperly Handled
10. 
    Inadequate Board Oversight

Manage Internal Controls
Definition: Internal controls are measures employed by a church or non-profit organization to safeguard assets from waste, fraud, and inefficient use.

Various Types of Internal Controls

1. Bank accounts
2. 
   Handling money
3. 
   Recording donations
4. 
   Deposits
5. 
   Check-writing
6. 
   Reimbursements
7. 
   Compensation reviews
8. 
   Payables processes
9. 
   Financial reports

Characteristics of Churches with Strong Internal Controls
1. They prepare a written financial procedures manual
2. They adopt a clear organizational structure with understood roles and responsibilities
3. They segregate incompatible duties  in accounting for, approving, and disseminating church funds
4. They receive an annual audit from a qualified CPA or CPA firm
5. They use computerized accounting software

Common Risk Factors for Financial Malfeasance
(Safe & Secure, by Jeffrey W. Hanna)

1. Complacency shown by leadership/management
2. 
   Low management expectations
3. 
   No pre-employment background checks-bonding
4. 
   Comparatively low employee compensation
5. 
   Unorganized work environment
6. 
   No written policies and procedures
7. 
   Weak internal controls
8. 
   No segregation of duties
9. 
   Poor documentation for cash disbursements
10. 
    One employee handling-recording bank deposits
11. 
    No required vacations
12. 
    Missed financial reporting deadlines
13. 
    Late issuance of donor and/or payroll reports
14. 
    Late financial statements and budget reports
15. 
    Insufficient supervision of the accounting staff
16. 
    No review of financial information by CPA

Practical Helps

1. Counting Procedures
2. 
   Offering Report
3. 
   Check Requests
4. 
   Purchase Requests
5. 
   Reimbursement Requests
6. 
   Financial Reporting