The following comes from a presentation by Mike O’Kelley, Executive Director of the Methodist Foundation. Stay tuned next week for the remainder of the 10 Commandments of Church Finances for Pastors.
Commandment 1: Thou shalt know thy role as a pastor
Elders are called to order including (¶340.1-2)…
Being “the administrative officer of the local church and [assuring] that the organizational concerns of the congregation are adequately provided for.”
Providing “leadership for the funding ministry of the congregation … including compliance with charitable giving documentation requirements … to provide appropriate pastoral care, the pastor, in cooperation with the financial secretary, shall have access to and responsibility for professional stewardship of congregational giving records.”
Caring “for all church records and local church financial obligations, and [certifying] the accuracy of all financial, membership, and any other reports submitted by the local church to the annual conference for use in apportioning costs back to the church.”
Deacons may have similar responsibilities in extension ministries
What should the pastor know?
Commandment 2: Thou shalt have sound internal controls
Knowledge of the church’s financial picture ≠ ability to modify records!
Consider “view-only” access in church’s financial systems
Segregation of duties
At minimum, these roles should be held by separate people:
Counting team (at least two unrelated persons): counts offering and documents details
Financial secretary: maintains giving and deposit records
Treasurer: writes checks/makes payments
Check Signatures: Require two signatures by people not normally part of the church’s financial operations
Additional people for bank account reconciliation and invoice review
Review/approval process for all expenses by individual(s) other than the treasurer designated by the finance committee
Pastor’s Discretionary Fund
Professional Expenses
Document, document, document!
Regular review of revenues/expenses
Monthly bank account reconciliation
Quarterly review of budget/designated funds by finance committee
Semiannual reconciliation review by someone other than treasurer
Key reports:
Profit and Loss: What money is coming in and what’s going out?
Budget vs. Actuals: Are actual expenses in line with the budget?
Balance Sheet: How much cash is on hand?
Policies should be in writing and regularly reviewed
Notice who doesn’t have much of a role here: the pastor!
Commandment 3: Thou shalt know thy tax and reporting requirements
Churches are exempt from income taxes but…
Payroll taxes
Unrelated business taxes
Sales tax
W-2s and 1099s
Giving statements
Commandment 4: Thou shalt regularly complete an audit
Required annually! (Responsibility of the Finance Committee - ¶258.4d)
May be completed by an internal audit committee (see BOD for restrictions on who can serve) or a CPA or equivalent firm
For smaller churches, consider a mix of both: annual audit by committee, quadrennial audit by CPA?
Review audit guide in resources - great resource for not only conducting an audit, but putting systems in place to help it go smoothly
Commandment 5: Thou shalt have a budget and review it regularly
Developed annually by Finance Committee and approved by Church Council
Should include:
Regular expenses (utilities, insurance, payroll, programming)
Planning for unplanned major expenses (roof repair, parking lot resurfacing, HVAC replacement, etc.)
Reserves
Don’t forget to include connectional giving and clergy benefits!
Numerous methods (historical, zero-base, etc.) - research and decide what works best for the church
Should be regularly reviewed by Finance Committee
Discrepancies might be ok if they can be explained - consider emerging expenses and historical cash flow