Money matters:
Good procedures overcome assumptions
Effective systems of internal financial control in a church should not only protect church assets, but also enable the church to operate better.
Most of our knowledge about internal financial control comes from the auditing profession. Auditing literature describes the components of such control. Two of those are particularly applicable to churches:
*First, the organizational environment sets the tone by reflecting the attitude toward the importance of control and accountability over the resources with which the organization has been entrusted.
* Second, control activities are actual policies and procedures established to achieve good financial control.
Aspects of both of these components in the context of churches warrant consideration.
Attitudes and misconceptions
Attitudes about the need for and appropriateness of internal control in churches can sometimes create problems. As a result, a church may fail to implement vital, yet simple controls over assets and activities.
The negative attitude toward control appears to exist largely because of misconceptions/misunderstandings in three general categories: 1. Adequate control may be equated with lack of trust. Frequently, volunteers are responsible for the financial activities, including the accounting function, of churches. As a result, church officials may be hesitant to impose needed financial controls because they fear it implies a lack of trust in the congregation.
In reality, adequate control has nothing to do with trust. Instead of implying lack of trust, controls actually provide protection for trustworthy people by providing adequate accountability. Questions regarding the propriety of actions can be avoided, and the possibility of an innocent person being falsely accused is dramatically reduced. 2. Implementing and maintaining controls are thought to be prohibitively costly. The cost of adequate control is insignificant when compared to the cost, financially and even spiritually/emotionally, that results from the breach of fiduciary trust when fraud or abuse occurs. 3. Implemented controls are thought to impose added inconvenience. This misconception is probably the most overstated. Obtaining approvals, added signatures, etc., does take time, but potential benefit more than offsets this inconvenience.
Policies and proceduresBrian Bakeman
While no system of internal financial control can guarantee fraud will not occur, some relatively simple policies and/or procedures can lessen much of the risk.
These suggestions warrant consideration:
* Improve understanding through education. Much of the resistance to implementing internal control policies and procedures in churches is related to a lack of understanding about their true purposes and importance.
Many churches have CPAs or other professional accountants/auditors in their congregations. These individuals are great educational resources. Beginning with the financial boards and committees, these professionals can make non-technical presentations about internal control.
* Check-signers have no record-keeping responsibilities. Checks for more than a preset dollar amount should require two signatures. Any and all check-signers should not have any other record-keeping responsibility. Additionally, at least one check-signer should review the documentation for the disbursement.
* Written procedures/documentation. All accounting policies and procedures should be established in writing. Written policies and procedures reduce misunderstanding and provide a means of education when changes in personnel occur. This documentation should also establish who is authorized to engage in what transactions. All non-routine transactions should require separate committee or even church-wide approval.
* Adequate documents and records. The financial records of the church should be kept in a secure area in the church, away from unsupervised access. Supervised review of all documents and records by church members is appropriate and should not be discouraged. The documents and records should be adequate to establish the purpose of all cash disbursements of the church.
* Background checks for key individuals. Where investments such as endowment funds exist, a background check on individuals handling these funds is especially important.
* Diligent, regular oversight by financial board or committee. Much has been written in the financial press about the importance of adequate oversight. In the church setting, regular, detailed review of financial reports by the financial board or committee is imperative.
—This is the last of a three-part series, reprinted with permission, from The Ledger, published by the National Association of Church Business Administration, www.nacba.net, 800-898-8085. Oklahoma Conference Treasurer Brian Bakeman is an association member.
