[This is a continuation of an article from the previous week.]
Structuring your church board subcommittees to ensure adequate financial oversight
Certain denominations have district board structures outlined by their denominational guidelines. But for others the structures can vary significantly.
Regardless of requirements, the effectiveness of a church board is not determined by the number of committees or positions assigned to members. Rather, it is determined by the composition of the board members and having members with the proper financial expertise in key positions. This could mean members who are business owners, chief financial officers, accountants, or controllers, for example. Experience and familiarity with not-for-profit financial statements or key internal control systems is also important.
Many churches form one finance/audit committee, but the functions of these two groups are very different. Also some states have laws that prohibit the combination of these two committees, so make sure you understand your state law.
A finance committee should be responsible for overseeing the setup of appropriate financial practices, including ensuring that:
An annual budget is created
Financial statements are prepared on a regular basis
Policies are in place to ensure appropriate reserves are maintained
In contrast, an audit committee should be responsible for making sure the policies and procedures set by the finance committee are functioning as intended and are adequate to ensure operations are following policy, with acceptable controls in place. Audit committee members:
Ensure that:
Management prepares and approves budgets before the start of the fiscal year
Financial statements are prepared, distributed, and reviewed on a regular basis
Reserves are kept at levels in accordance with the policies in place
Provide oversight of the church’s policies and procedures
Work with external auditors to interpret and implement the auditors’ recommendations
Many boards believe that one committee can successfully perform both functions, if state law allows. However, combining the two places a lot of responsibility and time on volunteer members. This makes serving on this combined committee a more time-consuming and less-appealing volunteer role that can be difficult to fill.
It may not be feasible for your church to have separate committees comprised of different members with the appropriate financial expertise. But if it is, splitting these functions results in fewer responsibilities and increases the number of Board members overseeing the church’s financial functions.
In practice, I have observed that churches sometimes make the audit committee a subset of the finance committee. Two or three members of the finance committee are appointed to the audit committee. They report back to the finance committee which, in turn, reports back to the full board.
While not ideal, members of the finance committee can be good candidates for this role because they are involved with the duties of the finance committee. Note, however, that the executive pastor and members of church management shouldn’t serve as members of the audit committee. Because these individuals perform managerial functions and implement the system of internal controls that is being audited, serving in this capacity would involve conflicting duties. However. They will likely attend meetings to respond to process and procedural questions and obtain information requested by the committee.
Information and insight
It’s important to consider how to best plan for and establish the duties for gathering financial information and ensuring proper oversight. Keep in mind that in most medium-sized churches it can take a subset of elders or the finance committee a significant amount of time to be trained on how to properly monitor the church’s finances.
It’s vital to put in the time and effort, however. When your church board is receiving the specific information it needs to monitor the church’s finances and reserve levels throughout the year, it can make informed strategic decisions to help maximize your ministry.
Written by Rob Faulk - Part TWO
Rob Faulk is partner and church and denomination services director at the accounting firm CapinCrouse LLP. Church Law and Tax
Photo by John Schnobrich on Unsplash