|
Internal controls checklist for church financial work
The following checklist is provided by the accounting services office of the Tennessee Baptist Convention.
General
(1) Are accounting records kept up-to-date and balanced monthly?
(2) Are adequate and timely reports prepared to insure control of the operations of the church, i.e. monthly financial statements?
(3) Does a church officer (someone in a financially responsible position) take an active interest in the financial affairs of the church and the reports available?
(4) Are employees/volunteers who are in a position of trust bonded?
(5) Are monthly bank reconciliations reviewed by persons other than the preparer?
(6) Are volunteers properly trained and supervised?
(7) Is there any separation of duties?
Cash receipts
(1) Are contributions opened by employees/volunteers other than the bookkeeper?
(2) Are receipts listed or taped prior to turning them over to the bookkeeper?
(3) Are checks immediately endorsed for deposit only, deposited promptly and intact by someone other than the bookkeeper?
(4) Are contributions recorded to donor records on a timely basis?
(5) Are contribution records sent to contributors?
Cash disbursements
(1) Are payments made from original invoices?
(2) Are all disbursements made by prenumbered check?
(3) Are two signatures required on each check?
(4) Are checks signed only when accompanied by original supporting documentation?
(5) Are voided checks retained and accounted for?
(6) Is the bank reconciliation prepared by someone other than the bookkeeper?
(7) Is there a petty cash fund? If so, is there a responsible employee/volunteer designated as a custodian of the fund?
Payroll
(1) Does a church officer approve all new hires and changes of pay rate?
(2) Are controls in place to prevent the payroll from being inflated without the knowledge of the church officer?
(3) Is the person signing the checks different from the person preparing the checks?
(4) Does the church officer periodically review payroll checks and journals?
(5) Is the payroll bank reconciliation prepared by someone other than the bookkeeper?
(6) Is the payroll paid from a separate bank account? |
BRENTWOOD — As individuals prepare their tax returns for 2007, the early months of 2008 is a good time for churches to review their financial procedures, agree two Baptists with expertise in accounting and finances.
Being proactive with church finances helps “close the doors to Satan,” noted Lisa McIntosh, a partner with the accounting firm of Gillette, Henderson, and Company, based in Hermitage, and a member of Tulip Grove Baptist Church, Old Hickory.
There are several ways churches can be proactive in assuring their members that finances are being conducted properly, said McIntosh, who has audited the books of both churches and Baptist associations.
One of the most effective ways is a full church audit by an independent auditor. “It shows you’re trying to be above board,” she said.
An independent auditor also can make recommendations that churches should follow. These are normally better received by church members than if the recommendations were made by a staff member or church finance committee, she noted.
But, McIntosh noted, full audits are very expensive, costing thousands of dollars, even for small churches.
Full audits are cost prohibited for most small to medium-sized churches, she said.
From her experience, McIntosh would not recommend a full audit “unless it is absolutely needed.”
She observed that most churches she has dealt with have inquired about audits if they are trying to obtain a bank loan or they suspect there could be problems.
McIntosh noted that most accounting firms have services that can help churches that are not as cost prohibitive as full audits.
McIntosh said her company can do “agreed upon procedures” in which they will look at specific areas of the church’s finances and then make a report with recommendations.
She suggested that the best alternative for most churches would be to have a certified public accountant (CPA) review the church’s financial procedures and issue a management letter noting weaknesses of the system and offering recommendations.
Another alternative would be an “inside audit” done by a committee comprised by members of the church who have expertise in accounting and finance. These can be effective, but they do have limitations because they do not have the independence of an outside auditor, she said.
McIntosh is a firm believer that if churches have good financial policies and procedures in place, an audit may not be necessary.
For instance, she noted that when it comes to counting money, no person should ever be left alone with cash and that no two members of the same family should ever count money at the same time or take it to the bank.
Other things to look for, she noted, is that the same person should not write or sign checks and reconcile the bank statements with the checkbook.
She also noted it is imperative that churches have good reporting procedures.
“It is important to report the finances of a church on a regular basis in a manner that can be understood easily,” she said.
“In a nutshell, be forthright about the church’s finances,” she stressed.
McIntosh also said it is important to have a time for members to ask questions and to have someone on hand who can answer those questions.
She also is an advocate of giving more information than what might be needed.
Doing so builds trust, she stressed, noting it gives the impression there is nothing to hide. “We put it out here for you to see.”
Deborah Taylor, accounting services manager for the Tennessee Baptist Convention, agrees that churches, especially smaller congregations, “have many options available to them to have assurance in the financial records of their church that are much less expensive than an audit by an independent accounting firm or that may cost nothing at all.”
Taylor suggested an internal control checklist (see sidebar).
The checklist helps church leaders identify the processes related to the cash receipts and cash disbursements of the church that may allow for potential problems, Taylor said.
“Once identified, new processes can be put into place that segregate the duties surrounding the finances to more than one person,” she suggested.
“Strong internal controls can safeguard the assets of the church and strengthen the reliability of the church’s financial records,” Taylor continued.
Taylor says she receives numerous calls each year from pastors, treasurers, and lay leaders who believe their church needs an audit and who seek information on how to do it.
She suggested that a second option for churches is to work with an independent accountant or accounting firm to perform procedures that do not rise to the level of a full-scope audit, but move the church toward stronger internal processes and controls.”
She noted that a firm can perform an internal control review or they can assist in the compilation of the church’s financial statements.
“The firm could also conduct a review of the financial statements which includes some measure of audit work, but not to the extent of a full-scope audit,” Taylor said.
“These steps can be taken over years so that when a full-scope audit is performed, the accounting firm can rely on the internal controls and the reliability of the churches financial records. This could translate into a much less expensive audit bill.”
