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Your Church, Jan/Feb 1999
When Your Church Needs a CPA
How regular audits can benefit your ministry
by Nick B. Nicholaou
More than
half of church splits are caused by financial concerns.
I'm not certain who came up with that statistic or what research it's based
on, but my observation as a church-management specialist for the last 12
years is: I believe it!
I'm convinced that those splits aren't based on financial problems, though,
as much as they are on questions and concerns about money.
In the construction business, electrical lines that carry higher voltage
get more insulation. The wisdom of that can be applied to church management:
the areas that tend to be disputed most in churches should get extra attention.
When it comes to church finances, though, when should a church ask for help?
And when should it consider calling in a certified public accountant?
When to Look for a CPA
A number of events could trigger the need for a CPA at
your church. Some of them:
1. A staffing change. When a key management person at church changes,
whether a senior pastor or business administrator, many churches ask for
an audit. The CPA who does the audit will help establish the
financial condition of the church at the time of transition. If questions
come up later about the new management, the audit will help identify whether
problems occurred under the new administration or a prior one. An audit will
help protect people on a ministry team from unfair accusations.
2. Applying for a building or capital-improvement loan. Many banks
and lending institutions require an audit before they'll even consider funding
a church's capital project. They'll also want to see the financial analysis
stated in a standardized way so they can do a proper ratio analysis in
determining whether the loan is a good risk. An audit establishes where the
church is at financially and shows whether there are proper controls in place
to help prevent fraud or embezzlement.
3. Suspicion of fraud or embezzlement. We hate to think this could
happen in a church, but it does. Churches are made up of regular folks, and
regular folks sometimes get caught up in the wrong things. Richard Hammar,
a leading authority on church financial and legal issues, says that if church
leaders are suspicious of embezzlement in their ranks, a CPA
can be of invaluable assistance in confirming whether or not there was
embezzlement.
In a situation that my company was recently called in to check out, an
administrator had been let go under suspicion of embezzlement. That person
began to work with another church, again overseeing financial transactions.
When leaders at the first church heard about the situation, they decided
they needed to find out more about their financial situation in case they
needed to warn the other church.
"This is not an easy task, but a church will have a much better chance of
getting to the bottom of the situation with the assistance of a
CPA," Hammar says.
4. Commitment to financial accountability. Churches preach about integrity
and accountability, and many work hard to manage their finances appropriately.
Yet a surprisingly high percentage of churches don't do all that's required
in financial management.
"Most churches have no fixed asset records, they may have unrecorded pledges,
the W-2s are not being filed properly, they have 50 'restricted' funds that
are mostly not restricted," says Dan Busby, another authority on church financial
management. "They are church designated or, worse yet, some of the funds
have a mixture of donor-restricted and church-designated money in the same
account."
Furthermore, many church boards or senior pastors don't want to do all that's
required for correct financial management. In effect, they say, "We're doing
the Lord's work here, and our heart is right. We're not going to do that."
"They don't know what an audit is," Busby says. "And once they find out what
it is, they don't want it." An audit scrutinizes all financial practices
and makes recommendations based on laws, regulations, and accounting standards.
"The services of a CPA are indispensable in establishing financial
accountability," Hammar says. "This comes at a price, and most churches
traditionally have been unwilling to pay for it. But I find that more and
more church leaders are concerned about accountability, and there is no better
way to assure it than with audited financial statements."
How to Select a CPA
The regulations that churches must comply with are very specialized. Most
CPAs are not familiar enough with this specialization to challenge
you to full compliance. Or they may require you to do some unnecessary things
in an effort to make your financial statements look like those of a for-profit
business.
How do you find a CPA who is experienced in church accounting?
I suggest the best way is to ask a CPA how many educational
hours he or she has taken in the past few years that have specifically dealt
with church-accounting issues. Having lots of church clients isn't enough;
a CPA should also have specialized training in church finances.
When to Hire a CPA
How often should a church hire a CPA? A church with a combined
budget of $1 million or more should probably have an audit every year. Annual
audits would help a church qualify for membership in the Evangelical Council
for Financial Accountability. That membership provides assurance that the
organization raises and manages funds according to ethical standards.
Churches with smaller budgets should probably have an audit every two or
three years with reviews done in the years between. Once you settle on a
CPA, ask for advice in determining how often you should have
an audit.
Whatever you decide, keep in mind that the cost of following a
CPA's advice could save your church many thousands of dollars.
In addition, the confidence that your contributors will have in your handling
of finances could even convince some to send more discretionary funds in
your church's direction!
Copyright © 1999 by the author or Christianity Today International/Your
Church Magazine. For reprint information call 630-260-6200 or e-mail
yceditor@yourchurch.net.
January/February 1999, Vol.45, No. 1, Page 66
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