The fatal mistake of many pastors and churches is to assume that they and those around them are above financial temptation.
—Richard L. Bergstrom
It was six years to the day after my youth pastor in Colorado had confessed to eight years of embezzling church funds (my wife remembers the date well—it was on her birthday), and I was dealing with a major dilemma. We had just concluded a pastors’ conference through our ministry with Church Dynamics, and I was trying to decide what to do with the funds.
We had received $180 in cash and $200 worth of checks made out to church dynamics international. I needed to reimburse myself for $180 in expenses incurred, and I owed $90 to the woman who had prepared the food for the day. I conferred with our staff, and we decided it would be easiest to set up a conference account locally and keep the funds separate for future conferences in the Northwest.
When I got home, it hit me: If I were to do that, I would face the same temptations that befell my youth pastor fourteen years ago when he set up a separate youth account in the name of the church! A cold chill ran down my spine as I realized how much I had forgotten in the previous six years.
A quick mental review brought the lessons of the past to mind. If I were to have a separate fund in the corporate name of our ministry, I had to assume I would be tempted to mingle ministry and personal funds and justify reimbursements to myself that might otherwise be considered out-of-pocket expenses.
For example, as I filled up my gas tank for the return trip home, I wondered, Should I pay for this, or should the ministry? After all, I came to the conference at my own expense. My mind tried to justify turning in an expense voucher to the conference account, but my heart knew better.
I also realized I would be tempted to deposit other checks in the corporate name that would be accessible to me. Both individuals and churches occasionally send us support checks made out to church dynamics international, which are intended to go to our ministry headquarters, where a deduction is taken out that goes to the larger ministry. Depositing them locally would save me that deduction and further the local ministry. How logical. How improper!”
And even if I weren’t subject to any of the above temptations, it would leave me open to accusation if there were ever any discrepancies in the account balance. In order to avoid any problems, I decided to send the funds to our ministry headquarters for processing.
Churches and ministers regularly face similar sticky situations. As we make decisions about how to insure integrity in such situations, I’ve found that several principles need to be kept in mind.
Original Sin Is Alive and Well
If I learned anything through that gut-wrenching experience six years ago, it was that none of us are above abuse of funds. The only way to protect oneself and others is not to provide the opportunity in the first place. The fatal mistake of many pastors and churches is to assume that they and those around them are above such temptations:
—”It could never happen here. All these precautions are just not worth the effort.”
—”Margaret has been doing our church finances for thirty years. She would never take any of the church’s money.”
—”Fred is the largest contributor in our church. He wouldn’t have any reason to divert church funds.”
— “Others know I can be trusted with church funds. I don’t need to keep detailed records.”
Over the years, I’ve heard many people share their stories. Somewhere along the line I lost count of the incidents reported, but here are a few examples that indicate how wrong such assumptions can be:
—In Colorado, a layman told me how a man in his congregation volunteered to set up the church’s finances on computer. Before the board figured out what was going on, he had skipped town with over $60,000, leaving his family behind.
—In Arizona, an usher bilked a church out of $100,000 before being nabbed in an fbi sting, which passed marked bills through the offering.
—In Southern California, a trusted layman diverted over $200,000 of the church’s building fund into unauthorized investments for personal gain—and then lost the entire amount. The church lost their financial credibility, and he went to jail over the matter.
—In Colorado, a pastor was fired when it was discovered he was using a secondary account to make personal purchases and pay seminary tuition, which was not the intended use of the fund. Today he’s a salesman.
—In the Midwest, a layman inadvertently lost a large sum of money designated for the church’s building fund when he made an investment that went sour. Because the investment had not been authorized by the church, he faced criminal charges. Other church leaders stepped in to cover the loss and avoid criminal prosecution.
We really should know better. The Bible is clear about our sinful natures. Even though saved, all of us still struggle with the temptations of the world, the flesh, and the devil.
“The heart is deceitful above all things,” says the prophet Jeremiah, “who can know it?” (Jer. 17:9). The author of Proverbs writes, “Who can say, ‘I have kept my heart pure; I am clean and without sin’?” (Prov. 20:9). And the apostle John reminds us that “If we claim to be without sin, we deceive ourselves and the truth is not in us” (1 John 1:8).
Given this reality, we have little choice but to take steps to insure financial integrity in our ministries.
Personal Financial Stability of Leaders Helps
The more stable the financial lives of church leaders, the more likely it is that they will maintain integrity in handling church finances. It was problems in his personal finances, among other factors, that led my youth pastor to embezzle church funds.
Scripture is replete with admonitions to insure the financial integrity of the church’s leaders, insisting that such people be “blameless”—”not pursuing dishonest gain,” “not a lover of money,” and having “a good reputation with outsiders.”
There’s a reason for that. I’ve observed that even an essentially honest person can become vulnerable to mismanaging corporate funds if he or she suffers a job layoff, a business failure, limited income in retirement years, or a catastrophic health problem. When the circumstances of a person’s life change that dramatically, the pressures can be enormous. That’s why I feel it is important to know about an individual’s financial status before asking him or her to handle the church’s funds.
How you discover that, of course, is not easy. How people use their money is a private matter. One can never be sure what’s going on behind the scenes, but we are wise to look for the following indicators before letting someone handle the church’s funds:
• A generous pledge to the church. Many churches require that their leaders be faithful tithers. “We expect that if people are going to be leaders in the church, they will be modeling faithful stewardship in their lives,” says one pastor. “We don’t monitor the average layperson’s giving with the same degree of scrutiny. But we do expect lay leaders to be tithers to their local church.”
• Up-to-date on all pledge payments. If a person is behind in pledge payments, it may indicate either an unwillingness to follow through on commitments or a personal financial shortfall. In either case, churches are wise to ask why the payments are not up-to-date.
By the way, tracking pledges not only helps choose good leaders, it’s also one way the pastor can stay in touch with the personal lives of the church’s leaders.
One pastor I know reviews the tithe statements of all pastoral staff and elders. He does this to note if giving drops—that may indicate either a financial or a spiritual problem.
“People often vote with their wallet before they vote with their feet,” says the pastor. “This way, we can discover problems immediately and deal with them.”
If a problem is revealed, the pastor or one of the elders seeks out the individual and asks how the church can help. Perhaps the person has incurred unexpected expenses or has lost his job but is too proud to turn to the church for help.
• No hint of reputation as a free spender. One member from a previous ministry came home one day with a new truck, without ever discussing the purchase with his wife. For him, spending money like this was a way to assert himself over a domineering wife. It pointed to a much deeper need in his life as well as his marriage, which later ended in divorce. He was not the kind of person to whom I wanted to entrust the church’s finances.
• A good reputation in the community. My last pastorate was in a small community where the leading men and women prided themselves on being good lawyers, physicians, salespersons, and business people, and many of these people came to our church. The atmosphere nearly demanded that the church’s financial leaders be solid people with healthy reputations in their life and work.
But no matter the community, a church cannot have a lay leader who has a shady business reputation making an appeal for the offering.
A good reputation doesn’t necessarily mean, however, a reputation for financial success. People can maintain a strong reputation even in the midst of financial adversity.
I worked with one lay leader whose business failed due to circumstances beyond his control. For a long time he had creditors hounding him to pay overdue bills.
Through the entire experience, however, the church board stood by him; all the other parts of his life showed integrity. In fact, he was regularly in touch with the bank and his creditors, working out a repayment plan.
Tough Questions Make for Clear Thinking
Following our experience in the church in Colorado, we devised a set of questions to help both ourselves and other churches evaluate their financial savvy.
—Do we count and record offerings immediately after they are received? Every moment they sit around uncounted is a moment when they can be dipped in to.
—Are offerings always stored in a secure or well-supervised area?
—Do we count our cash and checks twice for accuracy? To err in addition is human. But the more we check our work, the more we develop careful accounting habits and avoid careless accounting mistakes.
—Do we place offerings in lockbags (money bags provided by the bank requiring a key to open) after counting?
—Do we place the lockbags in a safe or a night depository until the bank opens?
—Do we strictly limit who has access to the safe?
—Do we change the safe combination when someone is no longer authorized to use it?
—Do we make sure that the same person is not involved in more than one of the financial procedures of the church (collecting funds, counting them, recording the giving, authorizing expenditures, writing the checks, auditing the account)? The more access a person has to the various procedures, the greater the ability to misuse funds.
—Are all persons authorized to write checks against church funds held responsible through an accounting/auditing system?
—Do we provide the bank with annual updates of persons authorized to sign checks against any account associated with the church? Some banks are, surprisingly, not strict about who signs checks for a church or for a particular program of the church. They know we’re a volunteer organization with a high turnover in leadership. We are wise to make sure they know who exactly can write checks, and for what.
—Do we issue annual receipts for giving? This is just another check on determining that what comes in has, in fact, been accounted for.
We found that unless we could give a firm yes to all of these questions, we might have a significant hole in our church financial structure through which we could lose hundreds or perhaps thousands of dollars.
Policies and Procedures Check Personalities
Churches that are not guided by policies and procedures are vulnerable to being misguided by personalities. An opportunist is quick to spot an opportunity.
Good financial policies, however, have multiple benefits: they protect not only the institution but also the individual, not only from temptation but also from accusation.
One problem, of course, is trying to institute new policies with financial people who’ve been around awhile. They assume policies are changing because others have become suspicious of them. Sometimes, then, it’s best to wait for a changing of the financial guard before instituting policies.
But in any case, it’s good to let people know why the changes are taking place.
“If churches simply take appropriate measures to insure that no one is vulnerable, they won’t subject their people to possible accusation,” an executive pastor told me. “We’re not challenging a person’s integrity when we develop policies and procedures for handling the church’s money. We’re just closing the doors so we don’t provide the opportunity for misappropriating funds. If we leave the door open for financial abuse, we share the responsibility for what happens.”
As I’ve spoken with other pastors on this issue, I discovered a number of policies common among them:
• Secure membership in the Evangelical Council for Financial Accountability. An executive pastor of a large church in Phoenix said this was their first priority in insuring financial integrity. Membership in the ecfa is like receiving the Good Housekeeping Seal of Approval in the area of church finances. This is especially important for larger churches that process huge sums of money on a regular basis.
• Never allow for presigned checks. In southeast Asia, a missionary who was a co-signer on the mission’s corporate fund had a habit of presigning checks because it was “more convenient.” When the bookkeeper filled in one check for several hundred thousand dollars and skipped the country, the missionary went to jail, and the mission was held liable for the bad check.
• Expenses should be documented. All requests for reimbursement should come with receipts and be approved by the person responsible for that area of ministry. If for some reason receipts have been lost or were never requested, an individual can at least sign a request for reimbursement that itemizes their expenses.
• Never pay expenses out of cash offerings. An executive pastor warns against this practice for two reasons. First, revenues will be understated when the offerings are deposited at the bank, and second, if no receipt is turned in, expense reports will be incorrect. Even if a receipt is given and the payment duly noted, it makes bookkeeping much more complicated.
• No checks should ever be written for cash amounts. Checks written to cash cannot be justified in an audit. There’s simply no way to document where the funds went.
• Avoid mingling funds. Monies given for a building fund must be held in reserve for that purpose. If a person designates a gift for something the church doesn’t want or need, the funds should be returned to the donor or permission obtained to reassign funds to another area.
One problem with mixing funds is that it’s hard to track and pay expenses properly. One ministry organization had the habit of mingling their funds, so that staff support was virtually indistinguishable from operating expenses. As a result, pay checks and reimbursements were often withheld so the organization could cover operating expenses.
• Do not allow for separate funds. Separate accounts should not exist in the church’s name—at least not without a regular accounting and an annual audit.
For example, a church might think it efficient to open accounts for youth, women’s ministries, and the benevolence fund, thinking that it is easier to allow these ministries to process their own funds. The problem, as I personally discovered, is that this can quickly get out of control. Someone needs to be monitoring such accounts on a regular basis to prevent abuse.
• Secure authorization for use of funds for special purposes. If the pastor or staff use church funds to help purchase a home, for example, make certain a written agreement is drawn up, and secure official board and/or congregational approval for such a transaction. It should be defined in advance whether those funds are to be repaid upon termination of the pastoral relationship or upon sale of the home.
(A word of caution is in order, however. The church should always consult a tax authority to determine how exactly to set up such funds legally.)
One summer, I visited the offices of an independent church that had grown rapidly. It was leasing office space and renting a high school auditorium for worship. The church had grown to more than 700 people, had purchased property, and was planning to build.
“What an ideal ministry!” I said to the associate, wishing I were in his place.
When I returned to the Northwest three years later, I discovered that the senior pastor had left under a cloud of suspicion. He had used building funds to buy his home, doing so without adequate board authorization.
A congregation of 700 dwindled overnight to less than 200.I was recently back in the same office with the new pastor, talking with him about ways to rebuild the congregation’s credibility.
A Second Opinion Is Needed Annually
For seven years prior to my going to the Colorado church, a perfunctory letter appeared in the church’s annual report indicating that all was well with the church’s finances. Needless to say, some respected leaders ended up embarrassed when it was disclosed that the church had lost more than $40,000 over eight years.
How did that happen? All those years they had performed an in-house, incomplete, audit.
A church audit is a series of procedures done to (1) test, on a predetermined basis, various financial transactions that occur during the previous year, (2) verify that internal control methods are working, and (3) form an opinion about the appropriateness and clarity of the financial statements presented.
An audit does not, however, guarantee that every transaction was accurately recorded. It is no proof that all funds were handled appropriately.
“An audit is the expression of an opinion,” says Manfred Holck, Jr., writing in The Clergy Journal. “Through a series of tests and inquiries and probing investigations, the auditor or the auditing committee decides if, based on the information given them, the financial reports do fairly represent the financial condition of the congregation. Based on a testing of selected transactions—checks written and deposits made—and relying on their own experiences, the auditors state as precisely as they can if things seem to be in order.”
Pastors I spoke with differed as to whether the audit needed to be done by an outside, independent auditor or handled from within by church members with expertise in financial matters.
At one church in the Northwest, the leadership recently completed an in-house audit. “The important thing,” said the pastor, “is that the auditing committee is made up of qualified people who are not associated in any way with the board, the staff, or the finance committee of the church.”
In this church, the auditing committee goes through all the books and records each fall. They are entitled to see anything, though they don’t look at everything. Every transaction over $1,000 is carefully examined. Transactions under $1,000 are examined on a random basis.
They review the financial process from beginning to end, asking a series of questions that deal with each of the major areas of the church’s finances, including cash receipts, cash expenditures, bank statement reconciliation, petty cash funds, individual member contributions, amortization of debt, and securities and investments. At the end of the process, the committee writes a paragraph summary on each area, assessing its strengths and weaknesses, and making recommendations to the church board.
Another executive pastor I spoke with strongly advocates having an outside, independent certified public accountant provide the church with a full audit. And he prefers it be done by a non-Christian, based on his conviction that “the church’s finances should look good to all people.”
In spite of the expense, he feels it is worth it. Knowing that an annual outside audit will be done gives the staff leverage to insist that certain procedures be followed or documents produced: “Our auditor insists on it.” Also, an outside auditor can see more quickly how a budget and financial reports could be confusing and so can recommend appropriate changes. Auditors can quickly get to the heart of matters: they will ask difficult questions because they are not intimidated about offending anyone.
The decision to have an audit done by insiders or by someone from the outside depends to a large degree on the size of a church and the scope of its ministry. The important thing is that it be done thoroughly by qualified individuals who are independent from the church’s financial proceedings.
In the end, a dishonest and diligent person can always find a loophole in a church’s financial structure, just as a persevering thief can find a way into a secure house. But installing good financial procedures in a church is like installing deadbolts and window jams in a home: it greatly discourages petty thievery, enhances significantly the financial integrity of a church, and protects church workers from accusation.
Copyright © 1992 by Christianity Today
