Faith-Based Accounting

Ingredient Four – Managing Your Cash

Monthly cash receipts seldom match what was budgeted and it is not unusual that during some months, cash outflow will exceed inflow. (Like July and August…)

Not preparing for this may force a church to:

• Dip into savings or investment accounts
• Pay bills late
• Borrow money.
• Dip into designated accounts (AKA – World War III!)

One way to avoid having to resort to these measures is using a monthly cash budget. This is a fairly simple process of developing a “budget within a budget”.  Using historical data:

• Estimate the next month’s receipts
• Estimate the next month’s expenses
• Compare the net amount to cash on hand
• Make adjustments as necessary based on the shortfall amount

Ingredient Three – Controlling Expenses

Even though we started with keeping an eye on receipts, most of the budget busts I have seen have been in this area.  Stories are legendary about ministers with little regard to the budget process and some of the budget bypassing techniques they employ can be quite creative.  Many of these situations I have helped churches work through if the church has simply understood this: A formal bill paying and approval system is a must!   

A strong bill-paying system must clearly document:

• Who authorized the purchase of goods or services
• Who received the goods and compared them to the original order
• Who compares the invoice with the authorization?
• Who prepared the check
• Who signed the check
• Who mailed the check
• Who recorded the transaction in the general ledger

 

Ingredient Two - Keeping an Eye on Receipts

Tithes and offerings are the financial life-blood of a church.  Changes in the flow of a church’s resource stream need to be regularly monitored.  This is not something that is only to be done during the budget development process.  By waiting until then, it may be too late.  By keeping an eye on receipts, churches can move quickly to address shortfalls.

First thing is to make sure you are identifying all kinds of revenues such as:

• Tithes and offerings
• Service revenues (Day care, school, book store, etc.)
• Special events
• Investments/Endowments

Once this has been done the goal is to be on the alert for trends.  The earlier a church spots a new trend in giving, the easier it is for making mid-course corrections.  Just like driving a car, it is much safer to ease over into the next lane than jerking suddenly on the steering wheel!

Here are a few questions a church should ask in order to identify trends:

• Is income increasing, decreasing, or plateaued?
• Are a significant number of members joining or leaving the congregation?
• How is the local economy doing?  Are any layoffs on the horizon?
• What is the demographic make-up of your church?  What did it look like three years ago?

Ingredient One - A Strong Platform

A strong platform for managing the church budget begins with the chart of accounts.  For any non-accountants reading this, a chart of accounts is simply a list of the church’s general ledger accounts used to generate financial statements.  The accounts are listed according to where they appear in the church’s financial statements beginning with the balance sheet and running through the income statement.  The accounts as they appear in the church’s income statement should be an exact replica of the church budget.  Frequently this can be a problem with churches using financial software designed for businesses.  Because the financial statements generated by the software system look like a business, the church will resort to spread sheets to develop a budget.  Unfortunately, this makes mid-stream budget analysis difficult.

A financial reporting system that keeps the church truly informed is the next requirement.  A church should generate timely financial statements (usually monthly) that generate not only results of activities but also a meaningful budget vs. actual comparison.  To be meaningful, the budget must be broken down by month but NOT simply by dividing the annual budget into 12 equal amounts.  Annualize the budget by incorporating the natural trends in all accounting years.  (For example, receipts will be much higher in December than July…)  Also, hardly anyone does this but try to include designated/restricted gift activity in reports.  It’s perfectly permissible to budget for these types of gifts.   

Budget Administration

Now it is time to turn to our fourth and final category, budget administration.  It doesn’t matter how much time a church puts into budget development or even prayers for that matter, if plans are not put in place to administer the budget once it is implemented.  Not providing adequate oversight of budget administration is not much different from not having a budget at all.  In my opinion there are four key ingredients to making all of a church’s budget planning pay off.  Sufficient church budget administration includes:

• Having a strong platform in place
• Keeping an eye on cash receipts
• Controlling spending
• Managing  cash

Budget Development – Step Five

The purpose of step five is to make sure the church is on mission in its budget planning.  In step five the church takes one last look at its budget before moving into the implementation stage.  This should include a critical analysis of all budget requests submitted by ministerial and lay leaders confirming that the requests are within dollar amounts previously established and consistent with the church’s mission and vision for the next year. 

• This should be done BEFORE the adoption and implementation of the budget.  To do otherwise would open the church to the discouragement and disillusionment we discussed in a previous post.  It is hard to undo this kind of damage…
• However, it is a good practice to perform this step at mid-year to determine if realignment is necessary.  Budgets are not written in stone, they are to serve primarily as a guide.

A few of the questions that need to be addressed during this process are:

• Are our numbers in alignment with our mission?
• Are we balanced between in-reach/outreach?
• Should any of these budget items no longer be funded? (Are they carrying out our vision/mission/strategy?)

Budget Development – Step Four

This may be the shortest post in the budget development discussion but it is the most important.  The purpose of step four is to allow church staff to PLAN WELL for the upcoming church year.  And, this will be impossible if the church does not COMMUNICATE well.

The allocation decisions must be clearly communicated to staff and lay leadership.  Knowing how much money is available for their area of responsibility:

• Frees leadership to plan the current year
• Allows them to submit realistic budget requests.

Budget Development – Step Three

One other suggestion regarding allocation of funds.  It is not a bad idea to leave room in the budget to build cash reserves for two good reasons:

• Having some cash on hand allows the church to address unplanned situations.  For example, here in North Texas, air conditioners can blow in the midst of the summer heat.  But not near as much heat that might be generated if after the air conditioner goes out, there is no money on hand to fix it….
• Also, having a reserve will allow the church to move quickly if a new ministry opportunity were to present itself.  Frequently, needs come to the attention of a church.  It can be a great discouragement if the church is unable to address unexpected opportunities to serve.

Budget Development – Step Three

Step three involves the allocation of the available funds to various church activities as determined by the mission of the church.  It must be stressed; there is no one way to do this because each church has its own specific calling and there is a wide array of ministry focus points among churches.  But, in my opinion, there is a universal truth – The best practice is to assign the task of allocation to a combination of staff/laity/committees/teams. Don’t leave it to a bunch of accountants on the finance committee…

The following is one process many churches employ:

• Start with personnel costs.  In one sense, churches are in the “service industry”.  Like other service providing entities, payroll costs will normally be the largest budget allocation. Typically 50% of the budget will be allocated to salary and personnel costs.
• Next come facilities costs, which include mortgage or rent payments, insurance, utilities and routine maintenance.  Historically, a healthy range has been 20 – 25% but in recent years, due to the economic slowdown, churches have been exploring alternate ways to provide meeting space.  The largest alternative probably is the concept of satellite churches.  Rather than building massive, mega church facilities many churches are instead opening “branches” in smaller lower cost facilities.  (Refurbished strip malls for example)
• The next category, missions and evangelism (outreach) will vary greatly from church to church due to variances in missions and vision.  Typically this includes foreign mission support, local community outreach and evangelism, and social needs (clothing, food, health care, etc.) 10% is common but churches using alternate ways of providing meeting space have been able to increase the amount they can spend on outreach
• The last category is local church programming (In reach) which are the primary ministry activities directed to church members.  These include Sunday School and discipleship, vacation Bible schools, Christian education, recreational activities and day care services among many others.  20% is common.

Budget Development – Step Two

The purpose of Step Two is to allow church ministers and lay leaders to know “how much they will have to work with.”   This is extremely important on two levels:

If ministers are given too low a figure, they may become discouraged even before the fiscal year begins.  They may begin to think and mull questions like these in their minds:

“Do they think I am a miracle worker?

 “This is an impossible task.”

“What’s the point?”

“I think I may be at the wrong church”.

On the other hand, if the ministers are given an unrealistically high amount to work with they will most assuredly become discouraged during the fiscal year.  This is a frequent occurrence with the “dream big” budget method.  Often, the ministers do exactly what they were asked, dream big.  And usually, the dreams are bigger than the resources.  The inevitable result will be failure which may breed discouragement. Dissension may not be far behind. 

The best way to avoid this is to start with what you’ve got!  Try to project what the church’s revenues will be for the upcoming year.  Do not simply increase last year’s budget as things might have changed significantly since then. Try to use “real” giving numbers. 

Just like the investment advisor’s standard warning, “Past results do not guarantee future results”, what happened in previous years may not happen in the next year at a church.  But, past giving activity is a good place to start.  First, take a look at the church’s receipts over the last three years or so.  Also, take a good look at attendance levels to see if any noticeable trends are present there as well.  Combine these two data points to make as good a prediction as possible of what the church expects to receive in offerings in the next year.

Next, the church should turn its attention to the expense side of the ledger.  The first step in this process is to calculate the cost of simply “keeping the doors open”.  In most churches this will consist of personnel costs, facilities costs, and denominational commitments.  Deducting these costs from the projected revenues results in a more realistic estimate of the dollars the church has available for ministry.  Ministers then should have a realistic idea of how much money they have to work with to carry out their particular part of the church’s mission.

Budget Development – Step One

The purpose of Step One is to make sure you are staying on “mission”.   This is accomplished by reviewing the church’s mission, vision and strategy.

Each church needs to know three things:

–     Who it is. (Values)

–     Where it is going. (Mission)

–     How it is going to get there. (Strategy)   

Without knowing these things and applying them to the budgeting process, the church budget will be nothing more that predicting income and CONTROLLING how it is spent.  This normally plays out in simply making sure the church stays within its means.  Staying within budget parameters is not a bad thing.  But, even though the church does not overspend, if it is not DIRECTING the church’s resources towards activities consistent with values, mission and strategy, the budget may end up being a failed exercise.

KEY: THIS STEP MUST COME FIRST!

Types of Budgets

There is no one way to do a church budget.  There are a variety of approaches and for the most part, no one way is better than the other.  Remember mission and vision?  These two factors will also impact how a church goes about its financial planning.  I do have to point out however, that even though I say there is no single way to do it right, there are definitely ways to do it WRONG.  I have included one of these “must to avoid” approaches in this post.

Here are some of the more popular types of budgets:

• Program Budget – Organizes proposed expenditures in terms of the cost of each program to be carried out
• Performance Budget – Emphasizes measurable performance so that input costs can be compared with output benefits
• Line Item Budget – Budget amounts carry over from the previous year and are then adjusted to current year expectations.
• Zero Based Budget – Prior year amounts are “zeroed out” and we start all over again…
• Ministry Budget – Dollar allocations are based on ministry goals for the year. 
• The “Dream Big” Budget…..

As I mentioned above, most of these approaches work effectively.  However, in my opinion, I need to express my skepticism about two, one should be approached with caution, the other should be avoided.

• The line item budget has one weakness.  Just rolling the prior year forward can be dangerous if the church does not have some type of review of the effectiveness of the ministry each year.  If no review is present, churches may continue to fund projects that have not supported the important missions and visions of their congregations.
• The “Dream Big” budget should be avoided.  Churches that use this system instruct their ministers to come up with a budget for what they want to do the next year “if money were not an object…”  Invariably this approach leads to unrealistic budgets and worse, unmet expectations, resulting in discouragement of both the staff and congregation.

Budgeting Defined (Part 2)

I ended the last post by asking, “Are these definitions sufficient?”  Obviously the answer is no because that would be the end of this blog series!  Keep in mind that the three definitions posted were all written by accountants…  As a result, the main flaw with these definitions is that they appear to be about only CONTROLS & CONSTRAINT.  There is much more to a church budget than these two aspects, contrary to what many finance committee members might think… 

These definitions are missing three key words.  See if you can spot them in these additional definitions:

• A strategic budget guides the church in allotting and spending its money in congruence with its deep, defining core values to accomplish a specific, biblical mission and a clear, compelling vision.  It focuses on where God is taking the Church.”  (Malphurs & Stroope; Money Matters in Church)

• “A church budget is simply the vision of the church for the next twelve months expressed in dollars, rather than words.” (Me)

I hope you spotted the same ones I did: mission and vision.  A budget concerned only with controlling things and not including the vision and mission of the church, is not adequate. 

Budgeting Defined

Before launching into a study of anything, I like to make sure I have at least a basic understanding of what the topic is all about.  So, before launching into church budget development I looked up a few definitions of what a budget is:

• An accounting device used to plan and control resources of operational departments and divisions. (Warren, Survey of Accounting)
• A plan of financial operation consisting of an estimate of proposed expenditures for a given period and the proposed means of financing them. (Beams, Brozovsky & Shoulders, Advanced Accounting)
• A budget is one of the most effective internal controls… (ECFA, Accounting & Financial Reporting for Christian Ministries)

Re-reading these definitions I notice several key phrases:

–     An accounting device

–     Control resources

–     A plan of financial operation

–     An estimate of proposed expenditures

–     Effective internal control

Are these definitions sufficient?

Budget Planning

Our next series of posts will be a discussion of budget planning for the church.  As I commented on our other blog (Faith Based Accounting: July 27, 2012) “Attitudes about budgets vary greatly among churches.  Some churches operate without one, a practice I definitely do not recommend.  Many others swing to the other extreme expending great amounts of time (and blood, sweat and tears…) creating a budget plan.”

In the next few weeks, we will try to share some insights that will help churches adequately plan and hopefully land somewhere in the middle of these two extremes.  As you read these posts, you might want to consider this as somewhat of a book review because much of the material is based on Money Matters in the Church by Aubrey Malphurs and Steve Stroope.  I highly recommend this book; it is one of the clearest and most concise discussions of church finances I have come across.

Our discussion will be grouped into four categories:

            Definitions

            Types of Budgets

            Budget Development

            Budget Administration

Trap #10 Taking Information technology for granted

Churches have embraced the digital world and are becoming very proficient in the use of computers.  A vast array of applications has been made available to the church including sophisticated financial accounting and reporting, childcare security, online purchasing, online tithing, phone trees and coffee bars with free wireless internet.  Without a doubt, churches have become technologically savvy.

Unfortunately, there is a vast array of other things that most churches aren’t so savvy about: the numerous new portals computers provide through which fraudsters can gain entry into the church.  Computer and online crime is drastically changing the face of fraud prevention.  The best way to address this situation is to simply provide a list of questions each church should ask itself:

• Does our church have a formal Information Technology security plan?
• Do any individuals at our church have access to all modules of the church’s software system?
• Does our church partition its computer applications so that employees and volunteers have access only to files necessary to perform their duties?
• Does computer access require passwords that are confidential and unique?
• Are our passwords changed periodically?
• Are passwords complex including alpha, numeric and case sensitive characters?
• Do we have backup procedures that are performed regularly that include off-campus storage?
• Do we have measures in place to protect the church from malware?
• Do we train our employees to avoid accepting email from unknown locations?
• Do we have a download policy?
• Do we maintain separate public and private wireless networks?

(This post is part of an article published originally in the Spring 2011, NACBA Ledger.)

Trap #8 Violating basic accounting rules and practices (Part 6)

A close cousin to ignoring the bank reconciliation is maintaining an excessive number of bank accounts.

Rather than using their church accounting software to take care of measuring and tracking restricted giving, some churches open separate bank accounts for each new special gift that may arise.

This results in a number of problems:

Burdens the accounting staff with extra work and contributes to the poor bank reconciliation management we discussed in the previous post.

Creates a great opportunity for a fraudster to play a very effective “shell game”.  With multiple bank accounts and limited controls, an embezzler can shuffle funds among the accounts to create a dense smokescreen, making detection extremely difficult. 

Key: The best practice is to gave as few bank accounts as possible coupled with strong internal controls and recordkeeping.

Trap #8 Violating basic accounting rules and practices (Part 5)

One of the more serious traps churches can fall into is poor bank reconciliation practices.  Some of the ways we have seen this played out:

Due to understaffing and time pressures, bank accounts are not reconciled for months at a time.

Bank reconciliations are not complete consisting only of checking for cleared checks and surface level comparison of bank statement balance with the general ledger balance.

The bank reconciliation is prepared by the same person responsible for check writing, general ledger, reporting etc

There is no review of the bank reconciliation by supervisory personnel.

All of these things seem to take place because the church staff and volunteers have a poor understanding of the importance of the bank reconciliation. The bank reconciliation is the “Grand Central Station” of an organization’s financial activity. With the exception of a few, usually immaterial transactions, (such as petty cash disbursements) every transaction will flow though the bank accounts of a church. Performing the bank reconciliation on a timely basis helps insure the viability of a church’s financial reports. Additionally, having an independent reconciliation is one of the most effective fraud prevention measures.

KEY: Make sure your bank reconciliation tasks include:

A comparison of dates and deposit amounts with teller team reports

Investigation and documentation of transfers between bank accounts

Accounting for the sequence numbers of checks written.

Examination of cancelled checks for suspicious signatures, endorsements or other alterations.

Comparison of payees on cancelled checks with the approved vendor list.

Review of voided checks.

Trap #4 Operating in the IRS and State & Local tax worlds without knowing the rules. (Part 3)

Many churches think that their state sales tax exemption applies to ALL TRANSACTIONS.

Unfortunately, this is not the case.  An exemption from sales taxes only allows the church to avoid taxes on goods and services that it purchases in carrying out its mission.  It does not apply to things that it might sell!

There is not necessarily a need to panic if you haven’t been collecting and remitting sales taxes.  First, you simply need to educate yourself about how the sales tax process works and see if any of the many exemptions from the tax apply.

For example, in Texas, where I live, the list is long of possible exemptions:

Meal and food products sold at church functions.  (Whew! Wednesday night suppers are safe!)

Annual banquets

Auctions, rummage sales and other fundraisers

One day sales

Membership dues

Publication fees if published and distributed by the church

These are just a few, and only apply in Texas.  Although many of the states operate in a similar fashion, there are differences from state to state.  If you are selling stuff, and haven’t thought about taxes, it may be time to give your tax professional a call.

Trap #3 Operating with little or no accounting controls

Because of staff size many churches have poor segregation of tasks

 

Next to the absence of well-defined, written accounting and management policies, the most common weakness we have noticed in churches is the lack of adequate segregation of duties.  In other words, the accounting tasks are not spread out among enough individuals.  This is usually due to budget constraints, as churches tend to fund ministries first, then whatever is left is applied to administration.  Whenever possible, accounting tasks, particularly those involving cash transactions, should be divided between several individuals to limit the possibility or even the appearance of the misuse of funds.  There are two main purposes for developing a strong segregation of tasks:

First, strengthening the accounting control system protects the Church from the misuse of funds and loss of assets. 

KEY: Second, proper segregation of duties protects Church staff and volunteers from unwarranted charges of impropriety.  In my opinion, this is the most important reason for spreading the work around as many people as possible.  We must never forget that in volunteer organizations, the appearance of improprieties can cause as much or more harm than actual occurrences of theft or embezzlement. 

All churches should investigate ways to protect itself and its staff by finding methods to segregate as many of the accounting duties as possible.  Here are some of the weaknesses we have seen in segregation of duties:

Often a church’s offering count teams are made up of the same individuals who perform the task week in and week out.  Action Step: Make an effort to enlist as many people as possible to serve as tellers.  Also, include a planned rotation of the counters 

Many churches on Sunday mornings, store their offerings overnight in a safe that does not require dual access.  Action Step: When money remains on Church premises for over twenty-four hours, use a safe that requires the participation of two individuals to unlock.  (A less expensive way to do this is use lockable or tamperproof bank bags and assign separate custodianship of the bags and access to the safe)   

By far the most common weakness is the habit many churches fall into of allowing the church financial secretary/bookkeeper to be involved in every aspect of the accounting process, particularly those involving cash.  Action Step: The church bank account is the “Grand Central Station” of a church’s business activity. One of the most effective steps that can be taken to provide segregation of duties is to remove the bank reconciliation task from the bookkeeping department and assign the work to another employee or volunteer.

Trap #2 Operating without a compensation plan (Part 2)

Getting off on the right foot – hiring right

One way to avoid unhappy situations is to begin on the right foot.  And in personnel matters, that means hiring right.  Churches should follow prudent steps in hiring their employees.  For starters, a church must know what it is looking for in a new employee.  That means that job descriptions should be prepared prior to the interviewing process. 

Once that is done, a church can then begin recruiting and evaluating potential employees.  Here are a few tips to guide churches in the recruiting process:

• Maintain a record, in writing, of all job openings.
• Keep a file of the various advertisements it has placed to recruit applicants.
•  Utilize a standardized applicant screening and interviewing process, making sure that managers are properly trained in the conducting of effective and legal interviews.
• Utilize a standard application form which informs applicants of the terms and conditions of employment. (Particularly the right to consider their religious affiliation.)
  • The application should avoid unlawful pre-employment inquiries. (Age, race, sex,. etc)

KEY: The application should be reviewed by the church’s legal counsel prior to being used in the hiring process.

Trap #2 Operating without a compensation plan (Part 1)

The second trap, or thing to avoid, deals with payroll.  Churches face risk in a variety of areas.  Facilities, congregational unity, financial, security, and our next topic, personnel are just a few areas of danger.

In business terms, churches are in the “service industry” and as a result, typically, 50% of church budgets are dedicated to salaries and benefits. Personnel risk is significant. Operating in the personnel arena without a formal plan makes it even riskier.

Unfortunately, some churches do exactly that.  Here is what has happened to some of those who chose not to manage personnel risk:

• Churches have been sued (and lost) after automobile accidents in which it was discovered the church assigned driver had a prior DWI.
• Churches have been sued after discovery of prior child abuse convictions of some of their employees.
• Churches have been victimized by embezzlers with prior convictions.
• Churches have been sued for unlawful terminations.
• Churches have been sued for sexual harassment.

In the next few posts, we will discuss things that should be done in order to avoid situations like these unfortunate churches.  It’s important to point out that they were unfortunate primarily because they were careless.

Trap #1 Operating without a plan – Long-term plans (continued)

Today we continue our discussion of the importance of long-range planning by looking at two other areas where churches need to be taking soundings, to see if storm clouds are on the horizon.

Ignoring long-range giving opportunities

At the present time, our society is going through the greatest asset transfer in world history.  Many of the baby-boomers, who have lived through the most prosperous eras of our nation’s history, are reaching retirement age.  With ever increasing amounts of disposable income many are also looking for worthy charities to share their abundance with.

Many pastors are surprised when they read in the newspaper or online that one of their members has given a substantial endowment gift to the local university or hospital.  Some pastors screw up the courage to ask why the church was not the beneficiary only to hear the following comment.  “You never asked.”

Whether churches like it or not, they live in a competitive arena.  Various organizations within the nonprofit sector are vying for a limited amount of donor dollars.  Churches also need to realize that secular charities are asking their members for significant gifts.  Maybe the churches should too…

When it comes to fund-raising, few churches look past current budget needs or an occasional building campaign.  Very few venture into the planned giving arena.  Perhaps it is time to begin.

Failure to address demographic change in the church’s mission field

In the last few decades, immigration has drastically changed the demographic makeup of our nation.  In the course this major shift, neighborhoods have taken on a new look and culture.  Unfortunately, many churches failed to adapt to their surroundings, and as a result, have seen a dramatic decline in membership.  In fact, many have ceased to exist.

Because most of these churches are in older parts of most cities and towns many church leaders in the growing areas feel somewhat immune to this situation.  I think this is a false sense of security.  I am getting old enough now to have seen quite a bit in my career providing services to churches.  One thing I have noticed is that churches do indeed have a cycle they follow.  Eventually, the new becomes old and almost all churches must re-evaluate their situations.  It is essential, to be an effective ministry present, each church must evaluate its calling.  One way to do that is to have a firm understanding of its surrounding neighborhoods.  By paying timely attention to these matters, churches can adapt their efforts and provide ministry to their new neighbors. 

Trap #1 Operating without a plan – Long-term plans

Because of dependence on the Whack-a-Mole management strategy, many churches seldom look past their current situation.  Unlike ancient sailors who took periodic “soundings” to determine how close they were to shore, many churches take few, if any steps, to determine if they are headed for rocky waters.  Unfortunately, a rising number of them do not realize they are in trouble until they run aground.

It is true that the Bible cautions us to not presume on the future. (James 4:13-15)  But, churches are also called to be good stewards.  As long as the church is acknowledging God’s will in the matter, part of good stewardship includes making some long-range plans.  Failure to do so could result in disaster.

Operating without a master plan in regard to land and facilities

Several years ago at one of PSK’s church business administrator breakfasts, we invited the local fire marshal to speak on fire safety.  He mentioned one thing that surprised me and another thing that made me think of the importance of master planning.

The surprise?  Other than petroleum or chemical fires, the fires feared most by firemen are church fires.  Because churches are filled with combustible items, paper, wood, fabrics etc. a small electrical problem can quickly ignite into a raging inferno.  But what he said next made me realize that poor master planning can be deadly as well. 

How does this tie into master planning?  The factor that endangers firemen the most is not the presence of combustibles. It is the fact that too many churches are a hodge-podge of different structures.  Without an integrated building plan which looks to the future, church structures tend to become a series of additions added one to another.  The result is a confusing maze of hallways, cubbyholes and dead-ends. (Tragically, in some cases this has been too literal).

This can be avoided if churches take the time to plan for the future.

Trap #1 Operating without a plan – Short-term plans (continued)

Operating without a formal, written accounting and management policy manual

In addition to a budget, a formal management document is a must to help insure that the church makes appropriate and effective short-term decisions.  Written policies and procedure documents assist churches in the administration of activities by helping to set forth in clear, unmistakable terms the mission of the church and how it will be carried out.  The manual will also establish and reinforce the organizational structure of the church by providing a clear delegation of duties and responsibilities.  It also will serve as a guide to direct and oversee the carrying out of Church activities.

One of the purposes of written policies is to head off problems before they arise.  And, in cases when problems do arise, having policies in place makes navigating the choppy waters manageable.  For instance, suppose your church is offered a gift of land of a sizeable dollar value. (According to the donor…)  The church accepts the land, transfers the title, and later learns the land has significant environmental issues.  (For example, the land was the site of a former gas station, dairy, or dry cleaners, etc.)  Unfortunately, accepting the land also results in accepting the liability for cleaning up the mess.  A good contribution policy could help prevent this from happening by requiring all gifts of property be approved by the appropriate committee prior to acceptance.  Contribution acceptance is just one of the topics to be included in a policy manual.  Here are a few more.

Organizational structure

Budget development

Cash management

Offering counting, recording and reporting

Bill approval and payment

Vendor approval

Investments

Financial statement presentation

Personnel and employee benefits

Insurance

Conflicts of interest

Fundraising

Building and property use

Restricted funds

Intellectual properties

Short-term mission trips

KEY:  A church accounting and management policies and procedures document is another brick in the wall of risk management.  The goal of establishing clear policies is to anticipate problems before they arise and having a suitable response should they occur.