Participants in short term mission trips are often called upon to help raise their own funds. In almost every case, churches want to know how much a specific mission trip participant has earned toward his/her trip. Additionally, they want to take donations online to help each participant reach their mission trip goals.
The easiest way to get the proper reporting out of church management software like Fellowship One is to configure a "sub fund" for each trip participant. This is simply a mechanism to understand how close/far each participant is from the mission trip goal. However, many churches see this as controversial and risky. They don't want to "officially" track this information for fear of compromising the charitable veracity of the gift, and they steer clear of any solution that involves a formal tracking of the contributions. However, this fear is not warranted and is usually driven by a lack of understanding of the real issues.
From a tax perspective, the important things to consider are:
1. In order for the contribution to be tax deductible, the short term mission trip must be an approved effort by the church. Occasionally we run into circumstances where the church collects funds for a church member who is doing their own mission work, as opposed to participating the a mission effort of the church. For example, a church member wants to go on a mission trip that’s sponsored by another church or another organization.
2. Donor’s can designate funds for a specific individual, but in order for the contribution to be tax deductible, the church must have ultimate control/discretion as to how the money is spent. A simple solution is to include a note or paragraph in the user document that specifically states that if an individual receives more funds than needed, the excess will be used by the church to support the mission. This is important language. Donors can’t expect to get their money back if the individual they are contributing towards exceeds their individual funding requirements, or even if that individual decides to back out of the trip. The gift is made to the church, or specifically towards the trip, but not the individual. That is the key.
From an accounting perspective, the considerations are different.
1. We advise church’s to have a separate GL account (not fund!) for each program’s revenue and expenses. Churches often net receipts and disbursements together so the only thing that shows on their trial balance is the net amount. This method is not in accordance with the accounting rules, but more importantly, the church needs to be able to see how much a program truly cost as opposed to only knowing the net result.
2. Sub accounts provide another alternative. If a church does not want to have a separate GL account for the revenues and expenses, then there is reporting power in the utilization of sub-accounts. A church can have a GL department for "Haiti Mission," for example, and then have a sub account for the receipts and another sub account on the GL for the disbursements.
3. Lastly, subsidiary ledgers can provide the detail needed for internal reporting, without necessarily tracking that detail at the GL level. Church management software (like Fellowship One) is a good example of how a subsidiary ledger can help track the contributions for the individual participants. Sub accounts on the GL for each individual participant is not practical or advisable, but subsidiary ledgers help meet this need effectively.
The rules for benevolence are a bit stickier than missions. But that's a another topic…
Does your church struggle with the accounting rules for mission contributions? What other problems have you faced? Join the conversation by commenting below.
A second way for a church to answer the question “Who gave us the money?” is to determine if the bulk of the tithes and offerings are concentrated within a small group of individuals. This is a simple process and is accomplished by generating a list of the top ten to fifteen contributors. If the percentage giving of this small group is too high, action needs to be taken.
I was told of one church that had two individuals providing seventy percent of the income! This type of situation calls not for the focused steps discussed in my previous post, but for a much broader approach in two primary areas:
- The church should use extreme caution in budget planning being careful not to make significant commitments too far into the future. Church leadership must keep in mind that their church is only one death, divorce or bad sermon away from financial disaster!
- Also, this situation would be a clear signal that it is time to implement a broad-based stewardship education program directed to all age groups of the church.
Verne Hargrave is the Church and Ministry partner at PSK LLP and author of the book, Weeds in the Garden.
“”The secret of staying young is to live honestly, eat slowly and lie about your age.”–Lucille Ball
One way to answer the question “Who gives the money?” is to analyze giving according to age groups. Two methods of analysis can be used: Computing the total dollars given by each age-group and/or computing a per capita giving average within each age group. These calculations allow the church to identify giving patterns within the church and determine if any of its member groups are lagging behind. With this information the church would then be able to engage in strategic, focused stewardship education.
For instance, if the younger groups in the church are lagging in giving, (which is often the case) the church could provide personal financial management programs aimed at young families (Dave Ramsey for instance) rather than conducting a church-wide “Stewardship Emphasis Sunday” (which is the usual approach.)
On the other hand, if the largest giving seems to be coming from the Boomer generation a different strategy may be called for. As this group approaches retirement it may be time to implement a planned giving campaign.
Verne Hargrave is the Church and Ministry partner at PSK LLP and author of the book, Weeds in the Garden.
“They did not require an accounting from those to whom they gave the money to pay the workers… (2 Kings 12:15)
Well, I guess the only thing that can be said is that nobody’s perfect!
We have no way of knowing if they lived to regret this lapse in accountability. I do find it amusing that in spite of their exhaustive planning, they left a fairly significant loophole; not requiring an accounting of how the money was spent. Perhaps they overlooked it, or more than likely, they became overconfident. With all of the good folks doing so many good things, there was no need to mistrust anyone. And in their case, it apparently worked out. But if I were pastor of a church, I wouldn’t follow their lead. It’s far too dangerous to push your luck.
The Bottom Line
Like it or not, pastoral leadership of a church includes financial abilities as well as spiritual. Pastors who ignore this fact do so at their own peril. However, those who embrace this leadership role enhance the likelihood that their church’s ministry will not be derailed by financial catastrophes. Here is a little exercise you may want to employ to make sure your church’s finances do not end in chaos. Periodically, perhaps quarterly or semiannually, get out a tablet and write your thoughts on the following questions:
- Do you have a financial mentor?
- Are you paying attention to what is going on with your church’s finances?
- If receipts are down are you sure it is not the result of loss of faith in the administration of the church?
- Are you actively seeking ways for your people to participate in giving?
- Have you reminded yourself lately that financial matters of the church are spiritual matters too?
- Do you have security measures in place to protect the church’s assets, the most important of which are its employees and volunteers?
- Have you distributed the financial tasks among several people?
- Are your records and reports helping you do ministry?
- Do you have established processes that are understandable and repeatable?
- Is your church playing by the rules when it comes to the IRS?
Taking just a few minutes to ask and obtain answers to these questions can help a pastor avoid wasting enormous amounts of time putting out fires. The ultimate bottom line? He can then spend more time doing what he was called and gifted to do, shepherding his flock.
“When they had finished, they brought the rest of the money to the king…” (2 Chronicles 24:14)
After implementing their processes, significant funds were raised. The money was paid to the masons and carpenters and the work was begun. Eventually, the temple was restored and services resumed. And they even had a surplus! The surplus was returned to the king. Once again, I must confess that this next illustration is quite a stretch and ask the reader to remember I am not attempting to interpret Scripture, only sharing points this passage brings to my mind. Because this topic is not very pleasant I will keep it short!
Key: What I was reminded of, when I read that the surplus was returned to the king, was that like it or not, in some respects the church is accountable to the government. In spite of our nation’s long held and cherished belief that the government should not interfere in the affairs of the church, the church does have a few responsibilities to government it must comply with.
Unfortunately, churches and ministries are coming under increasing scrutiny by the federal government. A discussion of why this is taking place is beyond the scope of this discussion as is any treatment of church and state issues. Key: However, to avoid unnecessary conflicts that have the potential to cripple a church’s ministry, each church should be diligent in three areas which in recent years have become hot button issues.
- First, be very careful to establish salaries and benefits that are reasonable. One way to insure that salaries are reasonable is to have senior level salaries set by an independent compensation committee that keeps minutes of its decisions and relies on compensation comparison data to insure that the church’s salary is consistent with the market.
- Second, be aware of two types of IRS non-compliance by churches and ministries that frequently make the news. If a church reimburses its employees for business expenses incurred on behalf of the church, it should do so using a written reimbursement plan that complies with IRS regulations. Also, if a church issues credit cards to its employees, expenditures should be governed by a credit card usage policy as well as the reimbursement plan.
- Churches should also exercise caution in soliciting and accepting gifts from donors. All gifts of cash and property must be substantiated in the form of a written statement that is prepared in accordance with specific guidelines issued by the IRS.
“They did this regularly…” (2 Chronicles 24:11)
Joash and Jehoiada established a set process to be followed. A collection chest was placed in a prominent place. As they entered the temple the people deposited their gifts in the chest. When significant funds had been placed in the chest the Levites transported the money to a counting room where the royal secretary and the high priest supervised its counting and recording. After the amount had been determined the money was placed in bags and eventually paid to the craftsmen repairing the temple. The Chronicles passage contains a capstone phrase; “they did this regularly.”
This phrase reminded me of a cardinal rule of efficient organizations. Key: Efficient organizations become efficient by establishing well defined processes. Joash and Jehoiada operated according to a plan. The plan was orderly, it had a fixed routine, it didn’t vary and it was repeatable. All of this was done with two objectives.
- First, they desired to conduct the business of the temple with a high degree of integrity.
- Second, they had a desire to accomplish the mission at hand, restoring the temple.
Unfortunately, too many churches follow a “shoot from the hip” process. Some even take pride in it. In the name of “flexibility” some churches disdain established polices and processes as too confining. Those that choose this route do so at their own peril. There is a fact of the business side of churches that everyone should be aware of. Every church has processes even the ones who take pride in their flexibility. Key: The challenge is this: will the church be in charge of the processes, or will the processes dictate to the church?
If a church has no written policies, those participating in the church’s financial activities will establish them. The processes will be made up along the way and will change each time the church experiences turnover in administrative staff, from the pastor down to the secretaries. The church’s processes, policies and procedures will be in a constant state of flux. At least until the train wreck. That is when too many churches finally say, “You know, we need to establish a routine around here!”
To avoid the train wrecks time needs to be taken to establish processes. This doesn’t have to be complicated and the policies and processes do not have to be exhaustive, resembling a military or government code of regulations. Key: The church processes should be defined in writing and should be simple and straightforward, understandable, repeatable, and yes, flexible. Some of the areas that should be covered are:
- Cash receipts and disbursements
- Personnel; hiring, terminations and benefits
- Facilities usage
- Member contributions.
Verne Hargrave is the Church and Ministry partner at PSK LLP and author of the book, Weeds in the Garden.
“When the amount had been determined…” (2 Kings 12:11)
First, I need to remind you once again that I am an accountant, not a Bible scholar so what I am about to do here is really crawling out on a limb. I am going to attempt a very simple word study because the word “determined” in this passage seems to be much more significant than it appears. Its meaning is much deeper than simply knowing how much money was raised.
After consulting a number of word studies and commentaries, I found some interesting opinions as to what “determine” means. To some the word means to “measure” or to “weigh out”.1 However, to others the word can mean “to make an estimate by comparing to a standard” or “to adjust to a standard to set something right.”2 A church’s recordkeeping and financial reporting are of deep importance. They serve as measuring rods to determine how the church is doing. Financial records and reporting can also serve as a compass, helping keep the church on course. They also are the chief method of financial accountability.
Key: One reason why a church’s financial reporting is so important is that, as unpopular as this may be today, a church is in the accountability business. The exact phrase, “give an account”, is found several times in Scripture. In Romans 14:12 Paul reminds that each of us will be accountable to God. The writer of Hebrews tells us that we must obey our religious leaders because they serve us with the understanding that they will have to give an account of their stewardship to God. And Jesus, in His parable of “The Shrewd Manager”, used the phrase in connection with financial management.
Giving an account is what financial reporting is all about. That is why my profession is called “accounting”. Contrary to the stereotypes, accounting is really not about picky people counting things. It’s about giving a report; hopefully a good report. A church’s accounting and reporting system is not boundary setting. It is not a set of rules designed to keep ministers and staff from doing what they want to do. Financial reporting is not a restrictive process that will inhibit a pastor’s ministry. It is primarily a method of “giving an account” to the congregation of the condition and activities of the church, stated in dollars and cents.
Key: Churches that follow the best practices ask themselves the following questions. “How thorough is our record keeping?” and “How forthcoming are we in communicating our reports to the body?” Those that avoid financial “train wrecks” have reporting systems that include accountability: the willingness to be forthcoming and complete in their reporting. They also are transparent: they are unafraid to open up their books and records.
Here are a few practical ways to do this.
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First, be sure your church is producing a complete set of financial statements. This will include a balance sheet which will reflect the assets the church owns, the liabilities the church owes and the balance of any funds restricted for special purposes. An income statement, usually called a budget report in the church environment, should accompany the balance sheet. This report will reflect the income and expenses for the period letting the reader determine if the church is operating within its means. If a church allows designated or restricted gifts to be given by members, a report displaying the restricted funds received and spent should also be included.
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Second, don’t be tempted to control events or information by using electronic spreadsheets exclusively to report to the church congregation. Often spreadsheets are prepared which provide a summary of “highlights” of the church’s financial results instead of a full set of financial statements. These often can be no more than “spin documents” created to keep the people happy, while hiding certain “lowlights” of the church’s activities. Unfortunately, when the spin runs out, trouble soon follows.
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Third, within reason, have an open records policy. Do not be afraid to let members see the financial condition of the church. This can be done by establishing a clearly defined process to allow inspection of the records by those who make reasonable requests to do so.
1 James Strong, Biblesoft’s New Exhaustive Strong’s Numbers and Concordance, (Seattle: Biblesoft, Inc. 2003)
2 R. Laird Harris, Gleason L. Archer, Jr., Bruce K. Waltke, Theological Wordbook of the Old Testament, (Chicago, Moody Press, 1980)
Verne Hargrave is the Church and Ministry partner at PSK LLP and author of the book, Weeds in the Garden.
“The royal secretary and the high priests…counted the money” (2 Kings 12:10)
“…the chest was brought in by the Levites… (2 Chronicles 24:11)
These two passages are a good illustration of what accountants refer to as “a proper segregation of duties”. What makes accountants breathe easier is for their clients to distribute bookkeeping and administrative tasks to as many people as possible. The passage from 2 Kings tells us that the royal secretary and the high priest came together and counted the money and placed the funds in bags. Although only two individuals are mentioned, it would be safe to assume there were probably more. Of the two mentioned, one represented the king, and the other the priesthood. This appears to be an ancient version of segregation of duties and checks and balances.
Many churches need to take this practice to heart. Unfortunately, often for reasons outside of their control, churches and pastors don’t employ this procedure. Often because of expediency or lack of funds, one person will be given all of the financial tasks – from start to finish. As long as the person is honest there is usually no problem. But, other times…
Key: Pastors should know enough of the details of their church organization to make sure that their church is using Jehoiada’s model. Churches should appoint teller teams to count the money. The teams should be made up of multiple members who serve in rotating terms. Also, the business office tasks should be split between as many individuals as possible. For example, employees who assist in counting the offerings should not be involved in posting tithing information to individual member giving records. Also, individuals who prepare and write checks should not have check signing authority or be in charge of mailing the bills. Because of budget constraints and the cost of employee benefits, many churches are beginning to address this problem by outsourcing some office tasks to professional organizations.
Segregation of duties should not be limited to bookkeeping tasks but should also extend to church management and organization as well. A church should employ a team concept for crucial duties such as the setting of compensation for church staff, budget development, and long-range planning.
The verse from 2 Chronicles reminded me of a simple test I advise my clients to apply to themselves to determine, on a surface level at least, if they have any weaknesses in their organizations. Notice that the passage states that the chest was transported by the Levites – plural. Key: Counsel I have given to many pastors and business administrators is to look closely at how money flows into and out of their church. As they review their procedures, I advise them to make a list of who is involved in the process. The ultimate question I instruct them to answer is this: “Is the church’s money ever in the possession of one individual, no matter how short a period.” (I have knowledge of one situation in which the funds were in one individual’s possession for no more than thirty seconds. Unfortunately that was all the time needed!)
Every Sunday morning, in churches across the nation, money is being transported from the sanctuary to the counting room, from the counting room to the safe, and from the church to the bank by sole individuals. This is a threat to the church. But, it is also a threat to the carriers. It only takes a few seconds for a thief to swoop in, grab what’s needed, and soar off. The best defense is to devise a system where the funds are never, even for the shortest of moments, in the possession of one individual. In doing this, the church should include all funds, special events, program fees etc., as well as the Sunday offering.
Verne Hargrave is the Church and Ministry partner at PSK LLP and author of the book, Weeds in the Garden.
“The priests who guarded the entrance put into the chest all the money that was brought to the temple of the LORD.” (2 Kings 12:9)
Almost in passing, this verse mentions that the money collecting process was being protected. Priests were posted at the entrance to the temple where the collection chest had been placed. These priests’ job was to “guard” this entrance and the money. They watched over the process to insure that everything was done in an orderly manner. When I read that one word, “guarded”, I was reminded that, even in the church house, security measures are necessary.
This is a frequently ignored fact. Many churches operate under an “it could never happen here” philosophy. This position is usually defended with some of the following famous last words: “We are all Christians here.” “We know and trust each other.” “It would be offensive to watch over our volunteers like a prison guard!” “We might as well go ahead and call them crooks to their face!”
While well meaning, these phrases ignore one basic fact. All men and women, even church goers, are flawed creatures. All of us are susceptible to falling to temptations of various types. And many are tempted to take things that belong to others, even at church. This situation can be exacerbated when a church has an employee with severe economic needs due to personal bankruptcy, job losses or family health issues. Security is important. Even at a church. Security concerns must be addressed as part of the church’s financial accountability program. But maybe not for the reasons most people think.
Church security measures are designed to provide protection in three main areas.
- The obvious concern is protecting the church’s assets; primarily its bank accounts. Losing money through error or theft can be embarrassing. It can cause a church to cancel or postpone plans that have been on the drawing board for a long time. But, in the end, money can usually be replaced. Additional appeals can be made to the congregation to make up the deficit and in some cases, insurance may be in place to restore most of the funds. However, there are two other things that typically are much more difficult to repair.
- First, is the reputation of church employees and volunteers. Even if a church suffers a loss, and it is relatively sure that the loss is due to mistake, not fraud, trouble could still loom on the horizon. For example, if a loss occurs and the church has not been concerned about security, and has no well defined accountability and documentation system, the reputation of those handling the funds could be tarnished. In the minds of some in the church, these people can never be trusted again, in spite of the fact that no proof was ever found that wrongdoing had occurred. Unfortunately, reputations are much harder to repair than money is to restore.
- A more important factor is the damage that can be done to the name of God. When financial improprieties strike a church the news is usually reported widely, both within and without the church. Inside the church, bad news is usually spread informally through the ever present rumor mill. Formally, the word is spread through business and committee meetings. Outside the walls of the church, the news media waits eagerly for stories such as this to spread quickly and dramatically. The news media loves to report on hypocrisy, especially in the higher profile churches.
The broadcasting of bad news has an impact, and the impact takes place both inside and outside of the church. Inside, some church members’ faith in God is weakened by moral failure within the church, and some discouraged individuals may even leave the church. To those outside the church, the bad news may reaffirm their belief that there is no truth to the claims of Christians. Their reaction is to never enter a church. This is why security is important. Money is secondary. It’s the message that can be tarnished, and every church should take care to “guard the entrance” just as the priests under Jehoiada did.
Verne Hargrave is the Church and Ministry partner at PSK LLP and author of the book, Weeds in the Garden.
“He placed it beside the altar…” (2 Kings 12:9)
Jehoiada, the High Priest, placed the chest by the altar. I have no way of knowing of course, but I get a sense that this was intentional. As I read through the passage two thoughts came to mind. Perhaps Jehoiada placed the collection chest close to an altar to remind the people that giving money is a spiritual act. Also, maybe Jehoiada placed the collection point so close to a point of worship to remind the people that the work to be done was spiritual. If the spiritual aspect of all of this activity was forgotten or lost, serious repercussions might follow. For instance, the work would once again not be accomplished, and the people would remain without a place of worship. It was imperative that the spiritual not be lost in the financial.
It has been my observation that it is very tempting for churches and their pastors to lose a grip on the spiritual as they grapple with the fiscal concerns of their congregations. There are a myriad of pitfalls and trap doors pastors can fall into or through. One trap is by going overboard on one of our earlier principles; paying attention to the details. When paying attention to the details, a pastor also needs to recognize that it is possible to get bogged down in them as well. He should be careful to make sure that he does not major on minor things. The pastor who does this will swiftly lose perspective and not be able to see the forest for the trees.
You may think it strange that this next pitfall is coming from an accountant. Nonetheless, spiritual matters come first, and churches sometimes put too much faith in their financial statements and not enough faith in God. The numbers may say no, but God may be saying “Go!” If that is the case, then the recommendation of this CPA is you had better go. I am not encouraging anyone to do foolish things, and some people have been pushed into risky ventures by being chided for their lack of faith. But the pastor must let God do the directing, not the accountants.
The most damaging trap though is one of attitude. Often a pastor and his leadership team fall in love with their financial methods. They rely too heavily on the management and leadership gurus currently in vogue and try much too hard to emulate corporate America. In some planning meetings I have been involved with, it has been difficult for me to determine if the discussion was about planting a new church or opening a new McDonalds! There was much talk about location, visibility and branding, but not so much about where God was leading.
Key: The lesson here is that as a minister and his church enter into financial planning they need to incorporate spiritual matters as they go. And I mean much more than simply opening up finance committee meetings with prayer. Every step of the way should be bathed in prayer and every financial decision should be quantified not solely in dollars but also in life impact. The church should not simply look at budget numbers as mathematical functions. It should never be forgotten that there are people represented behind each number on the financial statements. These numbers should not be analyzed as simply a percentage of revenue but as to how much impact on the lives of people they represent.
Key: Another suggestion is to view the budget from a spiritual perspective. In the business world a budget is simply a financial tool, something to measure how successful the company is or is not. But, a church budget, when developed from a spiritual perspective, is much more than a financial tool. It has much more meaning than being a report to compare this year with last year, or expected versus actual. A church’s budget is the church’s mission statement for the year, expressed in dollars. Keeping this in mind should result in a spiritual tone being the dominant theme of the church’s business meetings.
Finally, if giving is an act of worship, then by extension, the counting, recording and reporting must be too. The spiritual purpose of these acts must be kept in mind. As opposed to the business world, the purpose of reporting the financial results is not to measure success as the culture does, which is usually net income. The reporting of a church should be reflective of the church’s impact on the culture. If the reports are designed and used correctly, the church can measure its effectiveness by reporting who is being helped. More importantly, the church can also learn who is being missed so that appropriate changes can be made. This is a reminder that church financial decisions should not be about saving money. They should be concerned with saving lives.
Verne Hargrave is the Church and Ministry partner at PSK LLP and author of the book, Weeds in the Garden.
