Independent audits can save church from financial tragedy

Sacred Heart church is facing financial scandal/ContributedSpecial report by Mark Baxter

When a parish in Waterbury recently found itself missing $1 million, the question immediately became, ‘who was watching the money?’  The answer, in Waterbury as at many religious organizations, is that the church was watching its own.

That wasn’t enough, though, when a trusted priest at Sacred Heart was accused of taking the money himself over a seven-year period from a savings fund intended for the parish’s building renovations and church debt.

A regular church audit program is intended to prevent such occurrences and affirm the financial practices of the church throughout the year. Most churches, however, don’t have an independent review or compile their books appropriately, according to one Connecticut CPA, because the law simply doesn’t require it.

That tends to leave churches a bit lax in their accounting and controls, says Samuel N. Wilson , Jr., a Bridgeport-based  CPA specializing in church accounting, as the task ends up being handled by  people who are long-time members considered above reproach.

“They may well be trustworthy,” Wilson says, “but it’s in the church’s best interest to have a review done by an outsider to safe-guard the parishioners, to project a sense of transparency, and to ensure that monies are being used and accounted for as intended.”

Or, as stated by the United Methodist Church’s Local Church Audit Guide, “Conducting an audit is not a symbol of distrust. It is a mark of responsibility.”

The church leaders owe a fiduciary obligation to the church, Wilson adds, as stewards of the church’s resources.  In the case of the Waterbury parish, the church was required to have a financial council work with the pastor on fiscal matters, but the priest apparently  did not comply with that.

According to Christianity Today, there is often no requirement that a CPA or other outside accounting professional perform a church audit. The keys to such an independent review, when required at all, are that it be performed by a “qualified” person or persons, and that the auditor not be subject to control or influence by anyone who has responsibility for the financial accounts and records of the local church.

Regardless of who does it, though, a regular, independent review of church finances can provide reasonable assurance that good stewardship is being used in handling and accounting for the funds and other assets of the church. It also can protect the persons of financial responsibility from unwarranted charges of careless handling of funds, and builds confidence in the way the money is being accounted for.

Wilson said there are a number of financial analysis procedures that can be used to verify church reporting:

– In a compilation, the CPA will simply report the numbers based on financial records. The accounting is received from the church and compiled in acceptable formats – with little verification

–       A review, on the other hand, provides ‘limited assurance,’ meaning that analytical and inquiry procedures were performed to make an independent assessment of the financial statements

–       A full financial audit provides a very detailed analysis, with lots of inquiry, lots of verification, and sufficient testing to verify that the figures as reported are accurate.

The level and detail of the procedure needed usually depends upon the level of church funding, and any related debt outstanding. A rule of thumb is that a review is appropriate when funding is between $1 million and $2 million, and that a full audit review should be undertaken for levels above that.

Aside from financial levels alone, Christianity Today suggests that a church consider a professional audit when facing a staffing change, a building drive, or there is concern over handling of funds.  A regular review also can be viewed simply as a commitment to financial accountability.

Outside of the financial check-up itself, three simple elements can be implemented to control disbursement of church funds and help safeguard them. While many churches may lack for the volunteers and people to staff accordingly, those steps are:

–       The person who approves purchases should not prepare the checks for payment.

–       The person who prepares the checks should not be authorized to sign them.

–       The check signer should not be the person who approves invoices for payment.

In practice, then, the person who accounts for the income/donations will never handle any disbursements, and the person making disbursements will never handle income.

Churches and other religious organizations, of course, all have two aspects of their operations – the spiritual side and the financial side.

“Most attention is naturally paid to the church’s spiritual life.  But to be effective in furthering a church’s ministry,” Wilson says, “the church needs to take an accounting for that business side as well, developing sound financial principles and standards that will help position the church for the future.”

Watching the money, then, translates to watching the church grow.

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