Acts 29

Adequate financial internal controls are necessary to safeguard the funds you have been entrusted with, and to protect the reputation of the people handling the funds.  Your internal controls will also be taken into consideration if or when the church attempts to obtain a bank loan.  Last month I wrote about general procedures for internal controls.  This month I briefly discuss internal control procedures regarding income.

Income Procedures:

1) Sunday donations.
   a. There should always be at least two non-related people present during the collection and counting of incoming funds.  It is wise to have the counters be people who are well established in the church.
   b. The counting of income should occur as soon as possible after collection, and checks should be endorsed with a restrictive bank stamp at that time.
   c. A paper trail should begin with the counters.  It can be as simple as an adding machine tape, or a custom form.  The information that should be included is cash listed by denomination, a listing of individual checks, and a batch total for each fund.  The counters should sign the adding machine tape or form to keep a record of who was present for follow-up questions.  If for any reason there is a discrepancy between the counters’ form and what the donor data entry volunteers receive, it should be noted on the form along with any known reason for the difference.

2) Mailed donations.  Donations which come into the church office mid-week should be tracked by the receptionist, or someone who is not involved in the accounting procedures.  The checks should be endorsed and deposited in a lock box in the office when they arrive.  The receptionist should keep track of checks received throughout the week and at the end of the week place the list in the lock box, to be passed on to the donor data entry volunteers.

3) The donations should be entered into the church’s donor management software as soon as possible after the funds have been counted.  Effort should be made to keep all donor information confidential.  The donor management software should be password protected, and paper copies of any donation information should be kept in a locked drawer or closet.

4) The funds should be deposited with the bank and entered into the accounting system as soon as possible.  If deposits do not occur on the day of collection, they should be sealed in an envelope and locked in a safe until they can be taken to the bank.  For large churches, it would be beneficial to utilize an armored car service to take the deposits directly to your bank’s vault.

5) In light of separation of duties, it would be ideal for different teams of people to be responsible for counting, for donor data entry, and for the accounting data entry.  Someone should also review the bank receipts to confirm that they match the fund income form prepared by the counters, or that there is a written explanation for why the receipt doesn’t match the counters’ summary.

6) Weekly summary statements of income should be sent to the Pastor, Church Treasurer, Board of Elders, Finance Team, or any church body which handles the management and operation of the church.

7) Donor statements should be sent on a quarterly basis.  The donors should be encouraged to bring discrepancies on their statement to the attention of a designated church leader.  Donor statements for the entire year should be sent out in January.

This is only a brief description of basic internal controls for cash contributions.  There are other contributions to be considered, such as donated building assets, donated cars, and stock donations.  The reporting requirements for these specific donations differ from cash donations and additional resources should be used to determine those reporting procedures.  The Internal Revenue Service website (irs.gov) and Church & Clergy Tax Guide listed below would be extremely useful in determining the appropriate action to be taken for these special donations.

There are numerous resources available for further information on internal controls.  The following are a few I have found helpful.

Books:
The Church Guide to Internal Controls by Richard J. Vargo
The Frieze Resource Library by Rex I. Frieze, CPA
Church & Clergy Tax Guide by Richard R. Hammar, J.D., LL.M., CPA.

Websites:
Internal Revenue Service:  irs.gov
Richard Hammar’s online resource:  ChurchLawToday.com