Churches exist for the sole purpose of practicing religion. To operate successfully, every church has a mission, and although churches vary in denomination, every church sets a goal as to how to grow the congregation and do right by its members and attendees.
Churches need funds for service and outreach, among other charitable and operational expenses. The integrity of financial records, their organization, and the managing of money are essential to a church’s growth and ultimate success. Unfortunately, with the complexity of non-profit tax laws, donor funding, mission campaigns, monthly bills and salaries, most churches have neither the time nor experience to do the necessary job.
As with any corporation, most churches have a governing board that sets the expectations and guidelines according to the mission. Church board members have a fiduciary duty to uphold and promote moral, ethical, and financial practices representative of the church, including its donors and congregation.
The problem is that many church board members are either too busy with other duties or simply not equipped to handle the complexities of a church’s finances. As non-profit organizations, churches are protected to a certain extent by state and federal laws. Nevertheless, they have specific guidelines and laws that they must follow.
With all the demands and complications that churches face regarding their finances, it may be worth it for churches to consider hiring an outside source to handle their accounting and bookkeeping duties. After all, assuring that the management of finances is running smoothly allows a church’s governing board and staff members to concentrate on the more important aspects of the church: its mission.
What Are the Potential Problems of Churches Handling Their Own Finances?
The handling of finances for churches can prove difficult. Churches deal with much more than overhead, salaries, maintenance, and cash flow. Churches are non-profit organizations, and with that comes explicit IRS regulations that must be followed.
Churches are given a measure of autonomy by the First Amendment, which explicitly separates church and state. Thus, churches, for the most part, are allowed to decide their purpose and how they will conduct their business.
That does not mean, of course, that churches may do whatever they want with their finances. Even though many churches are exempt from having to file a tax return, there are basic conditions and limitations that must be met.
For instance, if a church conducts business that is not within the sphere of their mission, it is required by law to file a special form. It is also wise for a church to file a special form to provide transparency to their donors.
Tax laws and regulations are also constantly changing, and new ones are being added all the time. It is the job of accounting and money management professionals to keep up with these changes and additions. Church staff and board members, however, are usually not specialized professionals handling such things.
Churches have donors, and that means complications when trying to balance donated funds with donor fund restrictions. Moreover, the mishandling of funds could subject a church to not only an audit but also unnecessary internal bickering.
There are two types of donations, restricted and unrestricted. Unrestricted donations enable a church to handle the funds in whatever manner they see fit. Unrestricted donations come with specific rules or conditions as specified by the donor. These conditions might emphasize that the funds are to be used for a specific project, fundraising campaign, or purchase.
It is easy for an inexperienced bookkeeper to mismanage donor funds, grants, or fundraisers. With the mismanagement of funds comes a number of possible problems, including the inability to pay bills or salaries. These problems only exacerbate any tensions that may already exist between board members or staff who are trying desperately to keep up with the workload.
It is sad to say, but even churches are not exempt from becoming victims of fraud. Small organizations are easy targets for the fraudulent or unethical practices of an individual, churches included.
Church board members have a duty to act in the best interests of the church and its members and attendees. Therefore, church board members’ duty of loyalty means that there can be no transaction or investment that would financially benefit them or their families. Unfortunately, that does not stop some individuals from taking advantage of a situation, especially one where there is a lack of oversight.
Besides a board member’s duty to act in good faith according to the church’s mission, tenets, and bylaws, a board member may have access to or control of the church’s finances. Many church board members may not be suspicious enough to oversee the handling of financial transactions by a board member who is looking to profit.
A professional accounting or money management firm can more efficiently keep track of transactions and expenditures. They are also not personally involved, which enables them to have an easier time spotting a problem with a church’s finances where they may be getting exploited by a more devious party.
What Are the Benefits of Outsourcing a Church’s Bookkeeping?
Accounting accuracy is essential for any business, but when an organization is a non-profit organization, every dollar is critical. It is important, therefore, that books be kept in a neat and organized manner using accepted accounting principles that work.
Inaccurate bookkeeping and accounting can lead to the serious mismanagement of funds, which can in turn lead to untimely payments, missed deadlines, and a misleading image of the financial state of the church.
Sound money management saves money, and with the saving of money, organizations are more likely to grow. Saving money enables a church to invest, utilize their spending, and better manage their grants and donations. It is important that a church get the most out of its funds. This is best accomplished with sound financial strategies.
Tending to the books and management of money takes time, especially for someone who may be inexperienced. Because board members have copious duties to which they must attend, they need to be able to utilize their time and not spend it on what might be to them an unfamiliar and confusing task.
Hiring someone with professional financial expertise is vital. Questions about tax regulations and laws that govern non-profit organizations will arise frequently. It is important that someone who is qualified is there to answer and routinely provide an objective analysis.
A well-organized and well-run financial process is ultimately beneficial to a non-profit organization. Churches are usually not equipped to provide transparency of finances. An experienced accounting firm can provide regular reports that keep track of purchases, payroll, sales, assets, liabilities, donations, and more.
Hiring outside professional services can provide churches up-to-date online tools that make reading and understanding finances easier and less time consuming. These tools allow board members to quickly pinpoint what they are looking for. With more transparency and understanding of finances, a church will be able to make wise decisions that make financial sense.
Though churches are mostly tax-exempt, they must still follow tax laws and regulations, as well as maintain transparency about their finances. An accountant who is experienced handling non-profit organizations will eliminate potential problems and could help prevent unwanted audits and penalties. An experienced accountant will assure that payroll taxes, workers compensation, and excess benefit transactions are handled correctly.
Accounting services will ultimately assure the good reputation of a church by maintaining accurate and transparent records. This is critical to assure potential donors that the church is using its donations for what they were intended for, and that the church is being careful with the spending of the money.
Virginia Beach Church Lawyers at Anchor Legal Group, PLLC Represent Churches and Non-Profit Organizations in Need of Legal Representation.
If your church or non-profit organization was a victim of fraud or needs legal representation for any other reason, our experienced Virginia Beach church lawyers at Anchor Legal Group, PLLC will provide you with the competent legal representation you deserve. Call us at 757-LAW-0000 or contact us online for a free consultation. Located in Virginia Beach, we serve clients throughout Virginia Beach, Chesapeake, Norfolk, Suffolk, Portsmouth, Newport News, Hampton, Eastern Shore. We also serve our clients throughout the United States through our network of associated attorneys.