From Corporation to Congregation

Helping church administrators use for-profit skills in a nonprofit world.

When Katy left her position as a CPA at one of the country's largest accounting firms and took a position as financial administrator for her church, she looked forward to using her professional skills to help build the Kingdom. What she didn't expect was the steep learning curve she'd encounter. While serving in the church often fulfills an individual's need for meaningful work, the transition into the nonprofit world is rarely a seamless transition.

For starters, the organizational culture and politics vary drastically. Depending on the size and sophistication of a church, people new to the ministry may be surprised to learn how poorly the business details are managed. When I held my first volunteer treasurer position at the local church I attended several years ago, I was stunned to receive financial records in a box. They had been keeping the accounting information in a computerized agriculture package and crossing off the headers such as pounds and acres on the reports given to the church council.

Cultural and organizational differences aside, there are also a few significant differences relating to accounting and business issues for nonprofits versus for-profits. The first difference is the revenue stream. Corporations obviously cannot accept contributions; churches, on the other hand, rely on tithes and offerings as the main source of funding for the church. It is important for a "second-career administrator" to learn the details of accounting for and reporting contributions.

Accounting for the differences

Contributions can be given for specific exempt purposes (rather than a gift that can be used at the discretion of church management for any exempt purpose). They are then required by accounting standards to be treated as temporarily restricted. Unspent balances of temporarily restricted amounts at year-end (referred to as net assets) are carried forward to the next year.

There are also specific donation-receipting criteria that are required by the Internal Revenue Service, which include disclosing any benefit received by a donor for a charitable contribution that was given. Non-cash gifts (such as marketable securities or land) can be received by a church and should be reported in the accounting records at fair market value on the date of the gift. The gift receipt should simply include a detailed description of the gift without any valuation noted. The church should carefully consider whether to accept non-cash gifts besides marketable securities unless adequate due diligence is performed. Some gifts just aren't worth accepting because of all the complexities and constraints they place on a ministry.

Another difference is the reporting of expenses in externally distributed financial statements, such as those that have been audited. Accounting standards require that financial statements prepared in accordance with generally accepted accounting principles in the U.S. must at least disclose the expenses in a functional manner if they are not presented in the statement of activities (income statement) that way. The functional allocation reflects expenses in the following three categories:

  • program/ministry
  • administration?
  • fundraising

These allocations are made based on the nature and purpose of how the funds were used. The disclosure is probably more important for someone considering giving to the Red Cross than to your local church, however, it is still required and can be an interesting measure to monitor on an annual basis.

Other miscellaneous areas will pose unique challenges for "second-career administrators," such as the benevolence policy or deacon's fund. Missionary funding and the details surrounding church-sponsored mission trips also require specific accounting methods. Overall, the differences are not difficult to grasp; knowing that they exist is the main hurdle.

As churches try to increase the capabilities and staff expertise in the support functions of the church, "second-career administrators" can be an invaluable blessing. These individuals are able to find fulfillment and take part in a ministry that offers lasting impact in the lives of people. The church finds expertise that they otherwise would seldom be able to afford.

Churches should help these individuals transition successfully into their new roles. They could visit with some of the service providers to the church early on in the transition to understand the differences. Accountants, bankers, insurance agents, and others would be happy to share their expertise and provide a better understanding of the new environment. The board and leadership team should communicate information about the culture and known expectations. I know one ministry leader that made it a point to have a face-to-face meeting with each of the department heads to find out their concerns with the accounting department and to learn in an informal setting some of the unwritten rules and expectations of the organization. I also know a business administrator that meets with each of the new pastors that come on staff. He helps them to understand the expectations from a business standpoint of each of their roles. It's good to remember that you may have individuals in various capacities that come in to the ministry from a position outside of the "ministry world." Helping acclimate each of them will be a win/win for everyone.

Starting the work relationship properly, with good communication and wise counsel, will help lead to a long-term partnership that benefits the individual and the church. With adequate planning, sufficient time, and an awareness of the key differences, this new arrangement should fulfill the expectations of both parties and lead to potential administrative benefits that increase the capacity for greater ministry accomplishments.

Vonna Laue has worked with ministries and churches for more than 20 years. Vonna was a partner with a national CPA firm serving not-for-profit entities through audit, review, tax, and advisory services. Most recently, she held the role of executive vice president for a Christian ministry that works to enhance trust in the church and ministry community.
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