Recording and reporting the flow of money within a congregation instills confidence in its leaders and constituents that the financial resources needed for mission and vision are being generated and directed according to plan. Financial transparency also feeds a culture of trust that inspires people and motivates future gifts.
Build and Use a Budget
Most people think of a budget as a tool to set limits and control expenses; a broader view suggests it is a map for how an organization is going to financially implement its mission and vision. A budget gives a congregation an agreed upon financial plan to collect funds from constituents and then spend those funds on ministry through staff, programs and physical assets.
For a budget to be most useful, it needs to be available not only annually but also monthly to recognize the seasonal variations in income and expenses. This level of detail may indicate that there are periods of inadequate cash flow (for example, during the summer) where reserve funds will be needed to stay current with expenses.
A “narrative” budget is different than a traditional budget in that it attempts to translate line-item expenses into categories related to a congregation’s mission and vision. For example, if ministries of worship, pastoral care, faith formation and social concern are top-level categories of mission, all expenses (like payroll, benefits and facilities) would be proportionally distributed to those purposes. While a narrative budget is not meant to replace a traditional budget, many times it is more inspiring to tell the story of the congregation using a narrative format.
Opportunities to improve your budget include consolidating line items that no longer provide valuable information or breaking out income or expenses where greater definition would be helpful.
Maintain Accounting Systems
Every congregation—like every organization—needs a tool for tracking income and expenses, assets and liabilities, along with a way to generate income statements and balance-sheet reports. The value of such a tool is that it provides financial transparency into the bigger picture of flows and balances aggregated from all the underlying transactions and related details.
These days accounting systems are computer-based and may be either run on an individual workstation using locally stored software and data files or through the internet as a “cloud” solution. The latter approach makes it easier to share access to accounting information with other church leaders via the internet. With cloud applications, responsibility for software updates and data security are conveniently handled by the software provider.
In some cases, congregational accounting systems are integrated into a larger package of member management software that also tracks donor contact and giving data. In others, congregations use stand-alone accounting software that is different from their membership management software. When systems are separate (for example, QuickBooks), it is important to be able to have the amount attributed to donor gifts in individual donor accounts reconcile with the totals entered as giving income in the accounting system.
While your accounting system may be in place and functioning well, implementing new features like automated payments or payroll processing with direct deposit can provide incremental benefits.
Use Fund Accounting to Track Flows and Balances
Most congregations need to track income, expenses and balances of multiple accounts, including the main “operating” account where “undesignated” gifts are deposited, as well as a variety of separate, “designated” or “restricted” accounts. For example, when a youth group raises funds for a mission trip, a separate fund would need to be created to track related in and out flows and the resulting balance. This fund is designated for the sole purpose of the youth mission trip, and unspent funds need to be carried over into the future to that end. Endowment funds are examples of restricted funds that also need to track income, expenses and balances. This simultaneously tracking of multiple funds is called fund accounting.
Each additional fund that exists means additional complexity; one way to simplify your fund accounting is to seek out appropriate ways to close funds (like memorials) by spending remaining balances.
Count, Track and Report Donations
Congregations receive a significant majority of their income through donations from members and other constituents. It is essential that all these funds get deposited, credited to the donors who gave them, and ultimately reported on statements that donors can use for filing their taxes. Internal controls (described in the next section) ensure this happens in a consistent way that assures donors that their funds are being handled responsibly and are making a difference to the congregation’s mission.
Complexities around types of gifts, their value, the tax year they are received, and if the donor receives any benefit have varying tax implications. Congregations need to be knowledgeable about these laws and handle them as directed by the Internal Revenue Service.
Online giving (described in the Stewardship module) can make the process of collecting and reporting donations easier. As more people automate their giving (including the fund designation), there is less need to manually process donations.
Review and Implement Internal Controls
The operation of a congregation requires many practices and processes having to do with money and sensitive data. Internal controls are systematic ways we conduct these tasks while minimizing risk. At the heart of sound internal controls are intentional procedures that get the job done efficiently and lawfully, involve more than one person for checks and balances, leave a paper trail, and ensure the secure storage of records where sensitive information is not at risk.
The importance of internal controls is related to the magnitude of risk due to loss or negligence—the greater the risk, the higher the value of internal controls. Internal controls should be implemented for things like purchases and reimbursements, handling and recording donations, managing and reconciling checking and other asset accounts, paying bills and signing checks, retaining records, securing and backing up electronic data, calculating payrolls, paying taxes and more. The audit process (described in the next section) is an internal control meant to verify the accuracy of financial reports and accounting processes.
Any time is a good time to be thoughtful about how and why we do what we do. If there is a sense that the cost of an internal control exceeds its benefit, then perhaps it needs to be reconsidered. Likewise, an important function done sloppily increases exposure to risk and should be reviewed.
Conduct an Annual Audit
An annual audit of congregational financial systems and reports is a practice of responsibility, not a sign of distrust. Much like manufacturers have quality-control procedures, an audit helps verify the accuracy of reports and qualifies financial controls for the safe handling of funds. An annual audit process also helps discourage embezzlement as it sends a signal that systems are in place to uncover it.
Audits can cover many facets of financial and accounting operations. In fact, the ELCA Congregational Audit Guide goes through 33 kinds of audits. Audits can be conducted by people inside or outside of the congregation, for free or as paid auditors. A person does not need to be a CPA to serve on an audit team but should have some experience with financial and accounting practices and terms. Auditors should also be independent of those whose work they are reviewing and should report their results to some independent governing body or committee.
In some cases, audits can be done throughout the year as opposed to the end of the year. By avoiding particularly busy times of the year, this might make it easier to accomplish the audit.
Provide Feedback to Resourceful Servants
The Congregational Certificate Program is currently in the pilot phase. If there is a resource that is particularly helpful to you, or one that is not helpful, or if you believe a healthy congregational behavior is missing from our list, we want to know about it.
Use the Congregational Certificate Feedback Survey to guide your specific feedback to us. We will take all this feedback into account as we enhance this site.
Track Your Progress
Track your congregation’s improvement on healthy financial behaviors using the Congregational Portal. Start by indicating your congregation’s current proficiency on the behaviors associated with each of the 5 modules included on this website: Accounting, Finance, Human Resources, Risk Management and Stewardship.
As your congregation implements new behaviors, log in to the portal, find the behavior and indicate your improved proficiency.
To log in, you will need your five-digit congregational ID and the password provided to you to complete your 2016 Annual Report. If you need this information, contact Resourceful Servants at firstname.lastname@example.org.