Churches often see media coverage as a great way to get the word out about their ministry. But if a headline about your church includes words like fraud, embezzlement, or misappropriation of funds, that free publicity quickly becomes a PR nightmare.
It’s a challenge for any church to know how to safeguard their financial assets, most notably their cash donations.
Congregants expect their contributions to be handled with integrity. Treasurer or trustee boards require accurate reporting.
When churches give appropriate attention to the implementation and periodic audit of internal controls, they can create confidence that ministry funds are being handled responsibly.
Every church has cash handling policies and procedures, even if they are not written down. Why are some reluctant to formalize these precautions? Often it’s because of an inherent culture of trust—the conviction that “our people would never steal money.”
A wiser alternative is to develop a strong system of internal controls that never allows those who handle your cash to be put in a compromising position. Transparency is a foundational principle for any system of internal controls. Your processes must be known, validated and followed.
Handling cash is actually pretty simple. At a typical church, cash arrives in various ways. For example, it can be received through the offering plate, from mid-week services and special events, through the mail and in-person at the ministry offices.
The cash is then separated from the checks, and both are counted and recorded. Then the bank deposit is prepared and the cash and checks are sent to the bank. During this process some of the cash may be “recycled”—meaning it is not deposited but instead stored on the premises (in a safe or petty cash box) for ministry use.
Each of these steps presents a need for controls as the cash is “handled.” One simple cash handling principle is dual custody, which means that two or more unrelated individuals are present whenever cash is handled.
Dual custody should be followed throughout the cash handling process—when cash is being counted in the deposit, put into the safe, sealed in a bank deposit bag, and taken to the bank. Never violate this rule.
Petty cash drawers require controls too. Assign petty cash to one person – it shouldn’t be accessible to multiple people – and conduct “surprise reconciliations” frequently. All receipts and vouchers should be accounted for and the drawer(s) should always be in balance. Determine an appropriate volume of petty cash. One way to reduce the need for petty cash is by providing appropriate staff with credit, debit, or prepaid cards.
The way you store cash also requires safeguards. When different people handle separate aspects of a transaction, chances of an error throughout the process diminish. Many churches overlook this principle. Proper separation of duties means that the people making deposits cannot also record the accounting entries and that those who disburse cash and those who are authorized to sign checks cannot also reconcile the bank statements.
Once your cash handling plan is finalized, document it in a manual. Include policies, procedures, and sections on preparing the budget, processing transactions, accounting and record keeping, and financial reporting. Review your policies and procedures annually and update the manual if they change.
Your plan should also establish an audit committee that communicates with the board, defines and documents policies, communicate processes for monitoring compliance and establishes an organizational structure with clearly defined roles and responsibilities.
Jac La Tour is the communications manager with Evangelical Christian Credit Union (ECCU) in Brea, CA. www.eccu.org