By Dan Busby

Church leaders who keep expenses within an approved budget will impress their members. A good budget must build in enough allowance for variations, of course, but a reasonable, consistent pattern of expenses will be comforting to a congregation.

By contrast, lack of wisdom or integrity in people who handle expenses will often have an adverse affect on a church budget. Giving should be to the Lord, not in relation to where the money is spent. Nonetheless, congregants may give less if they lose faith in how church leaders are spending money.

The pastor has a great responsibility to interpret–from the pulpit and in printed communication–the financial condition of the church. This includes providing information on both revenues and expenses. The church might also consider the following safeguards on the ingathering and disbursement of funds:

Controls on Expenses Three elements are key to controlling the disbursement of church funds and safeguarding them from misappropriation:

1. The person who approves purchases should not prepare the checks for payment.

2. The person who prepares the checks should not be authorized to sign them.

3. The check signer should not be the person who approves invoices for payment.

In many small churches, all three of the above procedures are performed by the same individual. That’s not an ideal situation and one that could lead to a problem somewhere down the line. At the very least, a church should appoint different individuals to count weekly offerings as to pay the bills. But segregating the duties of purchase approval, check preparation, and check signing is the best way to control the disbursement of funds.

More safeguards include:

Two signatures. More than one signature should be required on checks over a certain amount. The dollar amount ($500, $1,000, $5,000) could vary, depending on the size of the church. One signature is generally adequate on checks of a modest amount.

The level of a church’s controls on expenditures should help you determine when more than one signature is necessary. For example, if a large church has a business administrator who approves purchases, and all check requests require the approval of the church treasurer before checks are written, then one signature may be sufficient for most checks. However, if a church has no budget and no written procedures for disbursing funds, requiring two signatures on all checks should help offset the missing controls.

Limited signers. Access to a church checking account should be limited to a few individuals. Having more than one signer is very helpful when the treasurer

is on vacation or unavailable. But church pastors should not be authorized to sign checks. That would be a serious breach of good internal control.

No blank checks. Checks should never be signed in advance of filling in the amount of the check. Use petty cash for minor cash expenditures. Larger expenditures that might require an immediate
disbursement are better handled by establishing open accounts with vendors or charging items on a church credit card. Otherwise, an expenditure should wait until an exact amount can be determined and documented.

More than one account. One bank account is sufficient for a church if its accounting system breaks down various types of funds (for example, operating, building, and scholarship). However, if the church has trust or endowment funds, those funds should be handled through a separate bank account.

Spending Policies Your church could adopt a number of policies on how it spends money. Some of those policies:

1. Limited terms for treasurers. Consider limiting the term of your treasurer to three years. This will give the person who does the job a needed break plus it will provide the opportunity for other qualified people to serve. It also protects the church from making traditional some practices that may not be in the church’s best interest.

2. Annual review of check signers. Once a year, the church board should adopt a resolution authorizing check signers. Otherwise, there may be individuals authorized on the bank signature cards who are no longer church officers..

3 A benevolence fund. Contributions made directly by a donor to needy individuals are not tax-deductible. To qualify for a charitable deduction, contributions must be made to a church or a qualified charity.

Your church would be wise to establish criteria for individuals who may receive assistance. It should also adopt policies on how benevolence funds should be disbursed. A board approved benevolence fund is an excellent way to handle gifts for needy individuals.

4. A housing allowance. A church’s governing board should establish a housing allowance for every pastor it employs. Ministers who live in parsonages should have a housing allowance, too, even though that will be a more modest amount than what’s provided for a pastor who provides his/her own housing.

5. An expense-reimbursement plan. A church can help save income tax dollars for ministers and other staff members by reimbursing ministry-related expenses under an expense-reimbursement plan. The church’s governing board should adopt a plan that clearly states the process of providing expense advances, repayment of excess advances, and reimbursement of expenses.

6. Guidelines for travel. Your church should develop some basic travel policies relating to ministers and staff. These policies should include guidelines on:

Type of payment. The church board should decide if actual travel expenses should be reimbursed or if it should use a per-diem method. It should also state whether it will reimburse a staffer for the use of a personal vehicle and, if so, at what rate per mile.

Type of transportation. The issue to be decided here is whether the church will pay for air travel and under what circumstances.

Family travel. Will expenses be reimbursed for a pastor’s spouse and children if they accompany him/her on church business? If so, how will the expenses be allocated? How will that be reported to the Internal Revenue Service?

How to Pay Bills Most bills for a church can be paid once a month. Payments should be based on original invoices and supporting documentation, however. If payment is based on copies of original documentation, it can be easy to pay the same item twice. Invoices should be checked for accuracy before being paid.

Payments should not be made from month-end statements. Typically, such statements do not include the details of products or services provided and are not an adequate basis for payment.

When each check is written, the supporting document should be marked with “paid” as well as the date and check number. If someone other than the treasurer prepares the checks, the treasurer should review supporting documents before signing the checks. The supporting material should then be filed in a paid-bills file alphabetized according to payee.

Checks should never be written payable to cash because it is essential to know what funds are used for. It is acceptable to issue checks to petty cash, however, when replenishing that fund.

How to Approve Expenditures The approval process for expenditures depends on the policies of a church. In a small church, the treasurer may be authorized to approve expenses if funds are available in an approved budget. In a larger church, an elaborate system of expense approvals may be necessary to manage disbursements.

Although every church should have a budget, many do not. In the absence of a budget, the treasurer must use his/her judgment about the appropriateness of an expense as well as whether funds are available to pay for it. This puts undue pressure upon a treasurer and could be a setup for mismanagement.

Many expenses relate to departments of the church such as Sunday school, children, young people, seniors, and maintenance. It’s a good idea to require the approval of a departmental representative before an expense is paid.

Documentation of Expenses Every check should have some sort of written document to support it–an invoice, petty-cash voucher, travel-expense report, payroll time sheet.

Written documentation may not be required in all cases, however. For example, a church may have a policy that no documentation is required for travel-related expenses of $75 or less (other than airfare or motels). This policy is reasonable and within guidelines of the IRS.

In other cases, there may be a good reason why written documentation is not available. The treasurer should determine when the lack of documentation is acceptable. For example, an honorarium may be requested for a visiting speaker. A written check request indicating the date of the speaking engagement and the event would normally be sufficient.

Or, a pastor may have lost an invoice for a ministry expense he or she paid out of pocket. If the amount paid is within reason, a written explanation of the item and why documentation is missing should be adequate.

Summary Good management of a church’s funds requires an effective system of disbursing funds. Some of the effects of a proper system include adequate internal controls over all expenditures, proper disbursements of funds, and efficient reporting of the use of funds.

Dan Busby, CPA, is a speaker, author, and consultant with Capin Crouse LLP, with offices in Atlanta, Chicago, Colorado Springs, Indianapolis, and Los Angeles.

THE ABOVE MATERIAL WAS PUBLISHED BY YOUR CHURCH MAGAZINE, MAY/JUNE 1999, PAGES 60-63. THIS MATERIAL IS COPYRIGHTED AND MAY BE USED FOR STUDY & RESEARCH PURPOSES ONLY.