FINANCIAL BEST PRACTICES

BASIC PRINCIPLES

• Churches are not businesses, but they need to operate like a business when it comes to finances• Pastor is usually the functional CEO• Board needs to function like a board of directors of a

company

• It often falls to the treasurer and the finance committee to remind the church leadership of this truth

BASIC PRINCIPLES

• Financial ministry of the congregation must engender trust – members have given God’s money to you• Many of the good practices we will talk about are based

on the concept of having multiple avenues of oversight over the church’s finances

• More than just 2 or 3 people should have a handle on the church’s financial position

• Separate functions (e.g., receipt of income from writing checks) to protect officers from possible suspicion• Importance of communicating with donors• Accountability and transparency are paramount

POLICIES YOU SHOULD HAVE

• Conflict of interest and ethics policies (should be signed annually by board members)• Record storage and retention policy• Money-handling policies:• Receiving and counting offering• Tracking of donations• Check writing (who does it, who must sign)

• Audit policies:• Level of review• How frequent• Who can do them

JOB DESCRIPTIONS

• Job descriptions for treasurer and financial secretary should be explicit and should be reviewed frequently• Include:• Duties and responsibilities• Reporting relationships• Term limits• Financial positions within the church require the most

time and scrupulous attention to detail• Oversight of Finance Committee should be clearly

spelled out in its duties

BONDING

• Consider bonding for treasurer and fin. secretary• Essentially an insurance policy against malfeasance• Common in the secular world for company officers who

handle money• Generally offered by your church’s regular insurance

agency• Bond the position rather than the individual

PREPARING A BUDGET

• A budget is a guideline, it is not fixed in stone• Types of budgets:• Line-item – always necessary to have this• Narrative – explains what the money helps the

congregation to accomplish • Zero-based – asks each department or committee to

start from scratch, rather than from prior expenditures• Requires justification of every expense• Difficult and time-consuming

• Cash-flow – predicts monthly income and expenses• Encourages saving for large expenses that occur intermittently

FINANCIAL PROFILE

EXAMPLE 1Income Sources: Offering SupportOperating This Year Lst Yr 2 yrs Offerings $84,166 $91,519 $103,997 Current 56.92% Perm. Fund. Income $6,000 $4,000 $4,000 Lst Yr 55.26% Building Use Fees $18,957 $26,125 $35,250 2 yrs ago 56.49%

Building Fund $38,746 $43,964 $40,852

Other

Other

Other

Other

TOTAL INCOME $147,869 $165,608 $184,099

PREPARING A BUDGET

• When we consider the expenses of the congregation, we group expenses into four main categories:• Salary Support• Building and Administration• Program Expenses• Mission Giving

PREPARING A BUDGET

• Salary Support includes salaries of all church staff and benefits associated with employing them. Such benefits would include social security offsets, health insurance, pension etc. It does not include costs such as auto expense or office reimbursements. Most congregations will expend about 50 percent of their income on salary support. Experience has shown that congregations that exceed 50 percent in this category are rarely over paying their pastor. In fact, most New Beginnings congregations fall short of average salaries for their area. The salary amount is likely not too high but the percentage of the budget allotted to salaries is too high, short-changing mission, outreach and program.

PREPARING A BUDGET

• Building and Administration costs are those associated with running the church office and the building. Typical costs include insurance, utility bills, maintenance and yard upkeep. A typical congregation will support building and administration costs with 25 percent of their income. Congregations that are not “right-sized” find themselves paying more for facilities, usually at the expense of their program.

PREPARING A BUDGET

• Program Expenses are costs associated with running a program. This would include faith development, evangelism, and worship materials, choir music and supplies, advertising, and other resources and supplies that enable the program to operate. This is usually about 15 percent of a church’s budget. Since this is the place where most congregations can control spending they will usually decrease their spending in this category first.

PREPARING A BUDGET

• Mission Giving is giving that the congregation has contributed to both Disciples Mission Fund as well as local mission causes. Mission giving trends are about 10 percent of a vital congregation’s budget as a starting point. Congregations will often reduce their mission spending after depleting their program spending.

Example 1 Current Operating Budget % of exp % Recommended

Salary support $83,712 50.17% 50.0%

Building/office $71,150 42.64% 25.0%

Program $5,787 3.47% 15.0%

Mission $6,210 3.72% 10.0%

TOTAL EXPENSE $166,859

Example 1 Assets and Investments Debt Property Value $3,000,000 Bldg loan $555,246.00 Investments $26,000 Bills

Svgs. $15,805

Memorial Funds $2,411

Other

Other

Other

TOTAL $3,044,216

Mo. Debt. Pymt $4,000 $48,000

Debt:Income Ratio 44% (not over 38%)

Example 2 Income Sources: Offering Support:Operating 2009 2008 2007

Offerings $166,182 $161,723 $155,861 2009 78.76%

Perm. Fund. Income $16,500 $15,000 $30,959 2008 73.26%

Building Use Fees $0 $12,817 $0 2007 71.85%

other $2,436 $2,861 $1,305

other $0 $0 $0

Rental $25,877 $28,347 $28,804

other $0 $0 $0

other $0 $0 $0

TOTAL INCOME $210,995 $220,747 $216,929

Example 2 Current Operating Budget % of exp % Recommended

Salary Support $134,785 64.52% 50.0%

Building/Admin $63,691 30.49% 25.0%

Program $2,585 1.24% 15.0%

Mission $7,837 3.75% 10.0%

TOTAL EXPENSE $208,898

Example 2 Assets and Investments Debt Property Value $4,891,919 Bldg loan $0.00

Investments $212,531 Bills $0.00

Svgs. $28,497

Memorial Funds $9,272

other $2,813

other $0

other $0

TOTAL $5,145,032

Mo. Debt. Pymt $0 $0 (not over 38%)

Debt:Income Ratio 0%

PREPARING A BUDGET

• Process:• Identify priorities • Estimate income• Estimate expenses

• The setting priorities step is often skipped, but is the most important• Don’t just work from the previous year’s budget, year

after year after year• Take time regularly within the congregation’s life to

reconsider your priorities and ministry activities

TAKING MONEY IN

• Individuals in the congregation should be designated to count the offering• Two people each week are needed; does not need to

include the financial secretary• But it is best not to make it the same two people every

week – those people tend to start seeing individuals as dollar signs rather than people• Nor should the two people be husband and wife

TAKING MONEY IN

• Record income on a tally sheet• Checks, cash received• Any irregularities are noted• Two signatures required

• Tally sheet original is filed in the church office• Financial secretary gets a copy of the tally sheet

and bank deposit slip

TAKING MONEY IN

• Depositing the money:• Should be done as soon as possible

• Offering should not be kept in the church or in someone’s home for any length of time

• Deposit slip should be saved and (at the time of audit) compared to the bank statements

• Receipts:• Should be provided (usually quarterly) to all identifiable

donors• IRS no longer accepts an individual’s cancelled checks as

documentation of charitable donation; gifts must be acknowledged in writing by the receiving organization

TAKING MONEY IN

• Electronic giving:• Not everyone carries a checkbook these days – how

then can they give?• A person with an electronic billpaying service can enter

the church’s name and address (and account number?) and have the bank cut the check• One could also set up an automatic transfer to the

church’s bank account• Treasury Svcs offers local churches a secure donation

web site, options for credit card giving, etc. (at a cost to the congregation)

PAYING MONEY OUT

• Each check paid (other than routine payroll and bills) should be based on an invoice or receipt that has been approved by a committee chair (someone other than the person paying the check)• Two signatures should be required on checks• A committee chair can authorize spending up to the

amount allocated in the budget; additional spending beyond this amount should be approved by the board

PAYING MONEY OUT

• Payment of employees and compliance with tax withholding is a BIG deal• Income taxes must be paid quarterly• Withholding must be tracked for each employee• W-2 forms must be sent out annually• Large penalties can be accrued if these are not done

correctly

• The General Church has an arrangement with Paycor payroll service that allows congregations to contract for this service

PAYING MONEY OUT

• Remitting funds to the General Church for your DMF donation or special-day offerings is easy to do• Online form• Designation of recipient is very important• Treasury Svcs would like these remittances to be made

monthly (TH p. 49)• You may request reports of your congregation’s giving

from Treasury Svcs (TH p. 50)

REPORTING

• A financial report should be given at every regular board meeting• A single-page report is usually sufficient:• Opening balance, income, expenses, ending balance• Variances vs. budgeted amounts• Status of checking and savings accounts and

reconciliation with operational balances

• Delve into financial variances only when the Finance Committee deems it important

COMPUTERIZED BOOKS

• Who is doing their treasurer work on computer? What programs are you using?• Basic money-management programs such as

Microsoft Money or QuickBooks work well• Need to have the ability to identify expenses as going

into different categories

• Church-specific programs are often much more involved and may include functions that are unnecessary (e.g., membership management)• These are often also more expensive

COMPUTERIZED BOOKS

• QuickBooks has an online version with a $200/year membership fee• Your documents are stored in the cloud• No paper transfer from old to new treasurer• Allows board chair, pastor access to financial

information at any time (but not ability to make any transactions)

COMPUTERIZED BOOKS

• Computer records (whether online or on your computer) should be password-protected and backed up regularly• Try as much as possible to use the same program

through treasurer transitions • Consider having the administrative asst/office

manager act as the church’s bookkeeper• Does data entry on each transaction• Prints checks (treasurer must still sign)

AUDITS OF THE BOOKS

• General definition – third-party review of financial records and practices• Levels:• Audit (specific definition) requires specific testing of

records and an opinion by the auditor; most comprehensive, may be done by a professional, expensive• Review is an overall assessment of the financial records

to determine if they seem reasonable; no opinion offered; done by a professional but at about half the cost• Compilation is a bookkeeping assessment of the

financial records only; costs about 25% as much as an audit

AUDITS OF THE BOOKS

• Whatever level you choose, it should be conducted by people with financial expertise, ideally from outside the congregational membership• Use of an outside accountant supports the financial

integrity of the congregation; also helpful for keeping up to date on tax law, suggesting methods for accounting, etc.• In-house audit – should include at least 2 competent

laypeople, neither of whom has any direct part in the financial functions of the congregation

• See TH pp. 18-20

WHEN WORST COMES TO WORST• When you don’t have enough money to pay the

bills, what happens?• The treasurer (initially) is the one who has to decide

how to go forward• But don’t let it be just your problem – share the anxiety

with the congregation