Churches play a significant role of sharing Jesus in our communities while also providing many different types of services. As churches manage financial resources, donations, and other valuable assets, implementing internal controls becomes crucial to ensuring their continued ability to execute their ministry and mission well. This article explains what internal controls are and their importance, explores various types of controls, and provides practical guidance for churches of all sizes.
Internal controls are procedures, policies, and practices designed to prevent fraud and promote accountability. The idea is these controls prevent fraud by minimizing the opportunities for financial misconduct or errors. Misconduct can look like embezzlement, misappropriation of funds, or inaccurate reporting. When a church has clear policies and procedures in place, accountability is easy. Individuals who are entrusted with financial responsibilities in the church should understand their roles and the impact of their actions on the church’s resources.
Beyond safeguarding assets and preventing financial issues, implementing effective internal controls offers many benefits to churches. Efficiency is one benefit of having good controls in place. The church staff and volunteers will appreciate efficiency because it will allow them to focus on their ministry activities and responsibilities. The most important byproduct of good internal controls is trust from the congregation. When your congregation trusts the processes in place, they trust the decisions made, and will trust the church with their finances. A well-controlled financial process provides confidence from members, which promotes good stewardship within the church.
While the specific control measures may vary depending on church, here are some basic internal controls:
1. Separation of Duties: This prevents an individual from having complete control over a financial transaction. Separate individuals should handle:
- Collection and deposit: This could involve a dedicated team responsible for collecting offerings and promptly depositing them in the bank.
- Record-keeping and disbursement: Separate individuals should handle recording donations, expenses, and maintaining financial records, while other individuals handle authorized check disbursements.
2. Authorization: Establish clear approval processes for expenditures, with spending limits set for different categories. This might involve:
- Pre-approval: Requiring supervisory approval for purchases exceeding a specific amount.
- Purchase orders: Implementing a system for requesting and approving purchases. This will help keep the church within an approved budget.
3. Record-keeping and Bank Reconciliation: Maintaining accurate financial records is essential. This includes:
- Detailed records: Maintaining detailed records of all income, expenses, assets, and liabilities for accurate financial reporting.
- Regular reconciliation: Reconciling bank statements and financial records every month.
4. Safeguarding Assets: Implementing measures to physically and digitally secure church assets is crucial. This could involve:
- Secure storage: Utilizing locked safes or secure locations for storing cash and checks, particularly between services.
- Access controls: Implementing access controls for sensitive information and physical assets, such as computer systems and church buildings.
- Cybersecurity: Employing cybersecurity measures, like strong passwords and data encryption, to protect information systems from unauthorized access.
5. Independent Review: Conducting regular reviews of financial statements and reports by a qualified individual or firm. This could involve:
- Internal audit committees: Establishing an internal audit committee composed of independent members to review financial procedures and reports.
- External audits: Depending on governing documents and size, consider engaging an external auditor to conduct a review of financial statements.
These are just a few examples that churches may or may not use. Smaller churches may not need the same level of internal controls as larger churches, but implementing essential controls should always be a priority. Educating staff and volunteers about internal controls, financial policies, and reporting procedures is key to their success. If your church already has these internal controls in place, they should be periodically reviewed and updated.
Implementing robust internal controls is not merely a financial safeguard; it speaks to a church’s commitment to responsible stewardship, transparency, and accountability. By adopting these principles, churches can build trust within their congregation, ensure the efficient use of resources, and carry out their mission for years to come.
One solution for internal controls is outsourcing. Many churches in our state have hired WatersEdge ministry accounting (www.watersedge.com) to do their accounting, payroll, and contribution tracking. WatersEdge has a vast team of people that can handle all your accounting needs and make sure that you have all your internal controls in place. If you would like a quote from WatersEdge or more information about internal controls, you can visit www.abf.org or contact Patrick Henry.