Guidelines for Handling Church Finances: Do's and Don'ts

Churches play a significant role in many communities, and proper handling of finances is essential for their sustainability and success. However, managing church finances faces many challenges and requires a good understanding of best practices to ensure transparency and accountability. In this article, we will discuss the Guidelines for Handling Church Finances: Do's and Don'ts.

Do's of Handling Church Finances:

1. Follow Generally Accepted Accounting Principles (GAAP): The basic principles of accounting under GAAP include maintaining accurate records, providing full disclosure of information, and reporting financial performance in a consistent manner. Church finance leaders should stay up-to-date on the latest GAAP guidelines and make sure they’re adhered to when preparing financial statements and other documents.

2. Maintain Documentation/Records: Good record keeping is essential for properly managing church finances. Financial records should be kept up-to-date and easily accessible. This includes transactions like donations, investments, payrolls, payments, and more. The church should also have a system in place to track and store these records securely.

3. Use Separate Bank Accounts for Church Funds: Keeping church funds separate from personal accounts is an important part of financial accountability. Church finance leaders should open separate bank accounts for church finances and designate specific people who have access to them. This will ensure that only authorized individuals can withdraw funds from the account and that the church’s money is not used for any other purpose.

4. Monitor Cash Flow: Cash flow is one of the most important aspects of church finances. It is important for church finance leaders to monitor cash flow closely to ensure that the church always has enough money to cover its expenses. They should also create a budget and stick to it, so that the church does not overspend.

5. Protect Donors’ Privacy: Churches should take steps to protect the privacy of their donors. This includes following the law and making sure that donor information is kept confidential. Donors should also be informed of how their funds are being used and given the opportunity to opt-out of receiving further communication if they choose.

6. Invest in money counting machine: To ensure accuracy and efficiency in handling church finances, it is recommended that churches invest in money counting machines. These counting machines can help automate processes such as recording donations, sorting bills and tracking expenditures. This can save time and effort in managing church finances and reduce the chance of human errors or mismanagement.

7. Set up a financial policy and procedures manual: It is essential to have a clear and well-defined financial policy to guide the handling of church finances. The manual should include detailed procedures for handling contributions, processing expenses, and financial reporting.

8. Establish a system of checks and balances: A system of checks and balances ensures that no one person has too much control over the finances. This system should involve multiple people handling different financial tasks, such as receiving offerings and making deposits.

9. Regularly review financial records and reports: Regularly reviewing financial records and reports helps to identify any irregularities or suspicious activities. It also ensures that the church stays within its budget and financial goals.

Don'ts of Handling Church Finances:

1. Don’t Commingle Personal and Church Funds: Churches must not mix their personal funds with church funds. This could lead to IRS implications, including penalties and fines, as well as potential criminal charges if the practice is intentional. Churches should ensure that all donations are logged and tracked separately from any other income.

2. Don’t Make Unauthorized Withdrawals: Churches should never make any withdrawals from their accounts without authorization from the board of directors or other authorized personnel. Churches should also have an internal system in place to track who has access to the bank accounts, what transactions they can make, and how much money can be withdrawn at any given time.

3. Don’t Make Unacceptable Investments: Churches should avoid making investments that might put their financial assets at risk. This includes making risky investments, such as stocks or derivatives, and investing in companies whose values may be unstable. Churches should also research any investments they make to ensure that they are financially sound and have a good chance of yielding a profit.

4. Don’t Make Payments Without Proper Documentation: Churches should always make sure that they have proper documentation for every payment they make. This includes receipts, invoices, contracts, agreements, and other forms of proof that a transaction took place. This will help protect the church against fraud and provide evidence of payments made in case of an audit.

5. Don’t Neglect to File Required Tax Returns: Churches must file their annual tax returns on time. Failure to do so can result in hefty fines and penalties from the IRS. Churches should also keep accurate records of their finances to ensure that they are able to provide the necessary information when it comes time to file their taxes.

6. Don’t Use Church Funds for Personal Use: Churches should never use their funds for personal gain. This includes using church funds for business expenses, vacations, or other non-church related activities. Doing so can result in serious legal and financial consequences.

7. Don’t Ignore Internal Controls: Churches should have internal control systems in place to ensure that their finances are handled properly. This includes setting up separate bank accounts for church funds, monitoring cash flow, and creating policies and procedures to protect donors’ privacy.

Conclusion

In conclusion, handling church finances is a significant responsibility, and it is essential to follow the guidelines for dos and don'ts to ensure transparency and accountability. With the proper financial policies, procedures, and training in place, the church can focus on its mission and positively impact the community it serves.