7 Common Financial Control Problems


by Vonna Laue

When it comes to maintaining financial integrity, churches of all sizes and settings often run into similar control issues. By addressing seven common problem areas now, leaders have a far greater chance of thwarting significant problems later:

1. Duties aren’t separated. Every church must make certain that at least two of the following three specific duties are split between at least two unrelated persons:

  • Authorizing transactions
  • Recording transactions
  • The custody of assets

Without separation, you’ve provided someone with access to the funds and access to the information systems. That person can manipulate information and cover up changes with little fear of detection.

2. Dated job descriptions and unmonitored workload. To keep job descriptions from becoming dated, review everyone’s duties and responsibilities regularly. Without this review, staff members may take on additional work that should be separated to unrelated persons, or they may take on more work than they can handle and properly oversee.

Also, a review of work-related duties can help make certain that someone isn’t overloaded to the point of potentially trying to justify or rationalize an act of embezzlement.

On a related note, churches often turn to volunteers. Make certain these volunteers are fully supervised and aren’t offended by close supervision and probing questions. Explain to them the importance of verifying their work to protect them and the church.

3. Unqualified personnel. Churches must steer clear of hiring or keeping unqualified individuals in finance-related roles. Sometimes a church hires out of pity because someone has been out of work a while; or a church might realize the person isn’t the right fit but doesn’t have the heart to let that person go. Neither scenario leads to good outcomes.

It’s also important to note the unique rules and laws that apply to church finances. It’s not the business world. It’s critical for churches to hire people familiar with church-specific rules and laws. You could also hire solid people not from a church finance background, but it’s essential to provide specific training that gets them up to speed about the ins and outs of church finance.

Churches may feel they simply don’t have the budget for such training. Thanks to the resources available online, many organizations offer free or low-cost webinars that can provide valuable training.

Lastly, make certain to review the compensation of the personnel handling church finances. Low pay can serve as a trigger for rationalizing a fraudulent act, so it makes sense to periodically make certain the compensation for these leaders appears fair.

4. Accounting procedures manual. This should be comprehensive and regularly updated. If someone can’t come in and do the job after reading this manual, a problem exists. If only one person understands how everything works, that’s a potential vulnerability.

5. Limited time and staff. When a church staff feels overworked, there’s a temptation to cut corners on processes and procedures. When your church finds itself in this type of situation, it’s critical to emphasize to the staff the importance of maintaining the processes and procedures for the good of the ministry and their reputations.

6. Lack of monitoring. This is simply making certain your church has internal controls in place and follows them. It’s smart to periodically test the system to make sure it works like it should.

7. Trust. Church leaders often express their desire to extend “trust” on financial matters because it’s a church environment. As a ministry leader once expressed to me, trust isn’t an internal control. Of the three points that make up the “fraud triangle”—incentive, rationalization, and opportunity—churches can most control opportunity. That means leaders must trust, but verify.

Vonna Laue is a partner and West Region Director with Capin Crouse LLP, a certified public accounting firm specializing in nonprofit organizations. She is also an Editorial Advisor for Church Finance Today. This post is adapted from a presentation Laue gave to the Mile High Chapter of The Church Network (NACBA) in September.

5 Keys to Financial Health

By Rollie Dimos

When you assess the health of your ministry, do you just consider attendance and giving trends or salvations and water baptisms? I’d like to encourage you to assess the strength of your financial operations and practices as well. Here are five keys that will reduce financial risk while increasing the overall health of your ministry.

Key #1: Establish written policies and procedures to define expectations and provide accountability.

Documented policies and procedures are an important component of strong internal controls Your operations manual should define those processes and policies that have been established to safeguard assets, promote stewardship, and ensure ministry goals are met. They should include how contributions are handled, how disbursements are requested and approved, and what documentation is needed to support a purchase.

The manual should also detail the bookkeeping staff’s daily and monthly processes which will ensure continuity of financial operations if there are changes in bookkeeping staff.

Written policies will increase the health of your ministry by minimizing confusion, establishing a baseline for employee expectations, and providing accountability.

Key #2: Segregate financial duties to minimize risk, promote accountability, and provide peace of mind.

Segregating financial duties is the foundation for strong internal controls. The financial responsibilities of the ministry shouldn’t be confined to only one person. Several people should be involved in processing contributions, approving purchases, signing checks, recording financial activity and reconciling bank accounts.

For example, the person who writes the check and enters the payment in the accounting system should be different from the person who approves the invoice and signs the check. Additionally, the
person who reconciles the bank accounts shouldn’t sign checks or make deposits.

In smaller churches, some of these duties are combined out of necessity. However, other compensating controls and reviews should be implemented to safeguard church funds.

A well-designed system of internal controls will increase the health of your ministry by minimizing risk, promoting accountability, and providing peace of mind.

Key #3: Prepare a budget that reflects priorities, and monitor activity.

An effective budget should be carefully prepared, based on ministry needs, and reflect the priorities of church leadership.

Each month, the revenue and expense activity should be compared to the budget projections. Make course corrections as soon as possible when projections aren’t tracking with actual activity. This will help you effectively manage current activity to ensure your year-end priorities and goals can still be met.

You can help improve the overall health of your ministry through a carefully prepared budget that shapes and controls your activity throughout the year.

Key #4: Insist on accountability and transparency for all financial transactions.

Accountability isn’t red tape or bureaucracy, but a biblical principle. It promotes good stewardship and protects church leaders. Your financial policies should always require receipts and invoices when paying bills or making reimbursements. If the church has business transactions with staff or family members, they should be approved by other leaders not involved in the transaction. Maintain a record of all financial transactions and prepare monthly reports for further transparency.

Key #5: Know when to ask for help.

Pastors should surround themselves with qualified accounting staff and volunteers. Leaders need to know applicable laws and requirements for nonprofits and where to find guidance when questions arise. Seek help from a qualified expert and submit your organization to a regular audit—whether one prepared by an internal committee or an outside specialist.

Implementing these keys will not only promote good stewardship but will strengthen your financial operations and result in a financially healthy church.

About the Author
Rollie Dimos, CIA, CISA, CFE, is the Internal Audit director at the AG National Leadership and Resource Center. As an auditor in government and nonprofit sectors, Rollie has been helping leaders assess the strength of their organizational controls for over twenty-five years. If you have a question about this article, you can contact Rollie by e-mail at rdimos@ag.org.