Author: twatermann

Could Your Church Face an ADA Noncompliance Lawsuit for Its Website or App?

What to know about this rising trend in litigation.

Nick Nicholaou

Our webhost recently brought to my attention a trend in lawsuits targeting websites and apps for their failures to comply with the federal Americans with Disabilities Act of 1990 (ADA). Could your church or ministry face such a claim? I have good news—read on!

What is the issue?

In 2016, more than 240 lawsuits were filed—most of them class-action lawsuits—alleging websites and apps failed to comply with the ADA. In 2017, there were 814 lawsuits for ADA noncompliant websites and apps. In 2018, that number nearly tripled to 2,258. The Los Angeles Times suggested the trend is expanding even faster, reporting there were nearly 5,000 of these lawsuits in the first six months of 2018. The newspaper estimated the 2018 count would eventually reach 10,000.

Regardless of the actual numbers, one thing is clear: This trend is climbing at a fast pace.

What’s at issue is whether a website or app can be used by those who have difficulty seeing or hearing.

The problem, according to our webhost, is that lawsuits are being quickly settled for cash. This is leading to the rapid expansion of these lawsuits.

How this impacts the church

I consulted with a couple of our favorite attorneys that focus on churches, and they told me churches are exempt from the public accommodation requirements of the federal ADA. (Keep in mind, however, that state disability laws vary, and confirming this with competent local counsel is a good idea.)

One of those attorneys, Frank Sommerville, said most churches are not aware of their rights under ADA. Church leaders can learn more about these rights by searching the term “ADA” on ChurchLawAndTax.com.

That churches are exempt is a crucial point. But many church and ministry leaders don’t know about this exemption and might be among those who are quick to settle for cash—unnecessarily. Be aware of this if your church or ministry is accused of having a website or app that is not compliant with the federal ADA.

Take the ADA challenge

Though churches are not subject to the public accommodation requirements of the ADA, we shouldn’t end the discussion there.

Our mission is communicating the Good News to everyone everywhere, as Jesus commands with the Great Commission in Matthew 28.

So what about those who have difficulty hearing and/or seeing?

We, the church, would do well to evaluate our websites and apps in light of this need to reach the hearing and seeing impaired well. A few tweaks can go a long way in solving the two primary issues driving these lawsuits:

  1. Coding the website so that screen-reading software can read the content, and
  2. Including subtitles and audio descriptions in video clips.
  4. We recommend reviewing your website content and looking to see if there are any other challenges that could affect someone who has a visual or hearing impairment. Even though churches aren’t at legal risk, such accommodations are part of our calling.
  6. Nick Nicholaou is author of Church IT: Using Information Technology for the Mission of The Church and is president of MBS, an IT consulting firm specializing in church and ministry computer networks, VoIP, and private cloud hosted services.

Church Staff Salaries: Better Kept Private or Made Public?

Balancing transparency and accountability with privacy is key—but no easy task.

Ruth Moon Mari

Church salaries comprise a growing percentage of church budget allocations. Large churches spent 52 percent of their total budgets on staff salaries in 2018, compared to 49 percent in 2016, according to data from the biennial Large Church Salary Survey conducted by Leadership Network.

As Church Law & Tax has previously reported, churches have no legal obligation to disclose salaries to the public or to church members. Even where denominations ask for pastor salary data in annual reports, they often do not require the salaries to be itemized by person, said Dan Busby, president of the Evangelical Council for Financial Accountability (ECFA).

As a result, it is often up to the church leaders at individual churches to decide how transparent they will be about salaries. Where churches report salaries to their congregations, they most often take the form of a lump sum that includes all salaries and fringe benefits and are not itemized by individual, Busby said.

“ECFA’s standards do not address how churches should handle the confidentiality or transparency of the compensation of church leaders,” he said in an email. “We leave this issue to the wisdom and discretion of church leaders. Neither do we promulgate any best practices on this topic.”

Art Rainer, vice president for institutional advancement at Southeastern Baptist Theological Seminary and author of The Minister’s Salary, pointed out in his book that unless staff are trying to deceive their congregations disclosing or protecting salary information is not a matter of morality, but it does have a practical impact on pastors and others.

“Most people, not just ministers, are uncomfortable having their salaries displayed before the public on a regular basis,” he wrote. “Some positions in the secular world require such disclosure as with politicians and executives in publicly traded companies. But most people do not have to deal with the prying eyes of personal finances.”

Among large churches—churches with 500 or more attendees—only 1 percent provide detailed salary information to their entire congregations, according to a 2016 survey conducted by Leadership Network. Another 1 percent provide this information to the entire staff. The vast majority of churches surveyed (81 percent) only provide the information to some combination of senior staff, in-house financial staff, and the church board.

Small and midsize churches might be more forthcoming with salary details, said Jeffrey Derico, educational programming coordinator for the Center for Church Leadership. Smaller churches have fewer individual salaries to account for, making it more likely for individual salaries to be apparent to the congregation. On the other hand, large churches that disclosed individual salaries might face an added challenge of having to explain discrepancies between different ministers’ compensation in salary and other benefits, both to congregants and other staff.

Challenges aside, the question of whether a church should disclose individual salaries should be considered in light of the church’s broader financial situation, Derico said.

“In an admittedly absurd situation in which the minister sets his own salary, full transparency would be extremely important,” he said in an email. “However, transparency is not as important—if transparency is designed to produce donor confidence—when a church has well-designed systems and processes that produce good decisions and mitigate abuses.”

Salary nondisclosure isn’t necessarily bad, said Ron Edmondson, CEO of Leadership Network, which provides information and services to large churches in the US. It is more important that churches are transparent with how they spend congregants’ money than that they disclose detailed salary information, Edmondson said.

“This issue has so much to do with the bigger issue of how the church handles finances. The church needs to be overly transparent with where the money goes,” he said. “If 45 percent of the budget goes to salary, tell everyone that. It’s the individual line items that can be more hurtful than helpful.”

Edmondson previously worked as a pastor and a church planter. Most recently, he was the lead pastor of Immanuel Baptist Church in Lexington, Kentucky. Edmondson pointed out that providing pastoral salary information to congregations can be uncomfortable for the pastors involved.

“It’s hard enough pastoring without feeling that your performance is tied to your pay,” he said. “If your salary is something that everybody talks about on the street or in the church, it’s an awkward position to place pastors and [their] families in.”

While it is important for churches to be financially accountable, including sharing financial information with congregations and undergoing regular financial audits, sharing detailed salary information is not usually necessary, Edmondson said. In general, church leaders trying to set fair salaries for their staff should do so by consulting surveys and researching salaries at similarly sized churches, he said. They should not set salaries by only consulting congregants, many of whom have not researched the topic and might make suggestions based more on feelings or perception than data.

“No church would form a committee of 250 people,” he said. “The more people you put in the room, the more opinions you put in the room, and the more it becomes a matter of opinion rather than well-documented financial practices.”

While some people in a congregation might need or want to know the salaries of their pastors and church staff, it is generally not a wise financial move to give an entire congregation the power to set or change those salaries, Edmondson said.

“We shouldn’t pay pastors and staff members based on popular opinion, but on prayerful consideration,” he said. “A smaller group needs to do the proper research so that they have comparable numbers. If you put it into a crowded room and the whole church is weighing in, that pastor’s pay is often going to be based on the last good sermon.”

Ruth Moon Mari is the editor of Response at Seattle Pacific University. She has a doctorate in communication from the University of Washington. Beginning in August of 2019, she will be an assistant professor of communication at Louisiana State University.

For more guidance on church compensation-setting practices, check out the following resources:

With Interest Rates Up, Should Churches Borrow to Build?

Some considerations regarding debt to fund expansion or new construction.

The News

In early 2019, Bankrate.com indicated borrowing costs continue to rise. And while a new report on May 31 suggested increasing inflation may slow increases to interest rates affecting loans, the overall view is that borrowing for the foreseeable future will cost more now compared to the past few years.

A guest article published earlier this spring on CapinCrouse’s website provides interesting insights for churches currently contemplating plans to construct or expand a building, in light of this borrowing climate. In “How Churches Can Win in a Rising Interest Rate Environment,” Nathan Artt, a principal with Ministry Solutions, cautions church leaders to carefully evaluate commonly held assumptions related to debt. Of note:

  • Debt, handled well, can benefit a church. Rushing to pay off debt for the sake of eliminating debt may be short-sighted if your church needs financing again in the future because lending terms secured now may be better than ones your church attempts to secure later. “[W]hen people say ‘debt is bad, pay it off,’ what they are really saying is, ‘let’s pay off our cheap money so we can borrow more expensive money later,’” Artt suggests.
  • Delaying a project now over worries about potential interest rate increases actually may cost you later. “[W]e are looking at projected 7% – 10% increases in materials and labor, mostly due to the labor shortage, over the next five years,” Artt notes. “That means a $5 million project will cost you more than $7 million if you start five years from now. That is far more expensive than the difference of a point or two in rising interest rates.”
  • A build isn’t always necessary—and bigger is not always better. Large projects are becoming less common, Artt says. More churches are considering smaller builds, which reduces their overall financial needs. Other churches are weighing leasing options for modest-sized spaces that give them time and flexibility to later determine their true long-term needs. Plus, Artt says, “there is a small lull in the Class A office, industrial, and retail real estate business right now, which means that there is a larger inventory and lower lease rates.”

The Church Law & Tax Take

Churches differ in their approaches to debt. Some avoid it altogether, based on theological positions. Others use it conservatively to help them with capital projects. If your church believes debt may play a role with a future project, the following articles and resources may further help with deciding how to approach it:
Image: getty/kinga krzeminska

Q&A: If an Outside Group Uses Our Building, Will that Jeopardize Our Property Tax Exemption?

Seven questions to help understand the potential implications of these arrangements.

Richard R. Hammar

Q: Our church allows a homeschooling organization to meet in our facility one day per week during the school year. In return, the group makes a donation to the church to help us cover the costs of electricity and water. I recently heard that such an arrangement puts our church’s property tax exemption in jeopardy. Is this true?

First, classifying such payments as a “donation” does not necessarily resolve the question, since the Internal Revenue Service (IRS) may conclude that the “donation” is actually rent paid to the church for the use of its facilities. The IRS often says that it is the “economic reality” that controls, not terminology.

Second, whenever a church is considering the rental of some or all of its facilities, there are a number of factors to be considered. Your question is actually one of seven questions that merit attention by your church leaders when weighing arrangements like this one:

1. Would receiving rental income impact our church’s tax-exempt status?

No, so long as the rental activity is insubstantial in nature. Unfortunately, neither Congress nor the IRS has defined “insubstantial.”

2. If receiving rental income does not impact our tax-exempt status, would our church be required to file a tax return and pay taxes on the rental income?

Only if the income represents unrelated business taxable income.

Federal law imposes a tax (equal to the corporate income tax) on the net income generated by a tax-exempt organization from any unrelated trade or business that is “regularly carried on.” This tax is called the unrelated business income tax (or UBIT, for short). Rental income derived from debt-financed property generally constitutes unrelated business taxable income unless the property falls within certain exceptions.

For example, if substantially all (85 percent or more) of the use of any property is substantially related to a church’s exempt purposes, the property isn’t treated as debt-financed property. Related use doesn’t include a use related solely to the organization’s need for income.

If less than 85 percent of the use of the property is devoted to exempt purposes, only that part of the property that is not used to further exempt purposes is treated as unrelated debt-financed property.

Even if a church’s rental activities are subject to the tax on unrelated business income due to the property being debt-financed, there are three additional observations to note. First, the tax is a prorated tax.

This means that only a portion of net rental income is taxable. The taxable portion of net income is determined by multiplying both the revenue and the applicable expenses by a ratio—average acquisition indebtedness during the year divided by the average tax basis of the property during the year. Acquisition indebtedness is debt incurred in connection with the purchase or improvement of the property.

For example, if the average acquisition indebtedness on the rented property during the year were half the property’s tax basis, then only half of the net rental income is subject to the unrelated business income tax. (Half of the revenue and half of the expenses would factor into the calculation.)

Second, the tax is assessed against net income from the taxable rental activity. This means the church is entitled to deduct applicable expenses. This would include a number of items, including an allocated portion of insurance, utilities, custodial services, and so on. Third, there is a $1,000 exclusion, meaning that the first $1,000 of net taxable income is excluded from tax.

A Form 990-T must be filed with the IRS if your church generates $1,000 or more of gross income from an unrelated trade or business.

3. Would allowing a for-profit entity to use church property threaten the church’s property tax exemption?

Possibly, depending on the state in which you live. See Table 12-4 in my annual Church & Clergy Tax Guide for the relevant sections of the property tax exemption statutes of all 50 states.

Note that in some cases the full or partial loss of your church’s property tax exemption may be avoided if the “rent” is characterized as a “facilities use fee” that is designed to recover the costs to the church of providing the property. You will have to check with the tax assessor or a real estate attorney about this.

4. What about liability concerns?

You must assess the increased risk of legal liability associated with the rental of your property. Some risks may be too great to even consider, especially when you consider the relatively modest rental income that will be received. Any rental activity involving minors represents the highest risk. The lessee must provide evidence of insurance in an amount that is acceptable to you. The church should be listed on the lessee’s liability policy as a named insured. You also should check with your church insurer about additional coverage under your policy.

5. Is the rental activity a permitted use under our church’s zoning classification?

Your church needs to verify that the use of its property by an outside group is permissible under zoning law. For example, if you rent your property to a childcare provider, is this a permitted use in your zoning classification? Possibly not. You will need to check with your local zoning authorities, or an attorney, about this.

6. Should we require the outside group to sign a facilities use agreement?

It is possible for a church to be liable for injuries that occur during the use of its premises by an outside group since it is the owner of the premises. This risk can be reduced by adopting various precautions, including the following:
  • Have the outside group sign a “facilities use agreement” that (1) provides the group with a mere license to use the property, (2) contains a hold harmless and indemnification clause, and (3) states that the church provides no supervision or control over the property when being used by the group. This document should be prepared by an attorney.
  • Have the church named as an additional insured under the group’s liability policy.
  • Review the group’s liability policy to ensure that it provides adequate coverage and does not exclude sexual misconduct.
  • If the group’s activities will involve minors, have a written acknowledgment from the group that all workers have been adequately screened. Fifth, check with the church insurer to determine coverage issues in the event the church is sued as a result of an accident or injury occurring during the group’s use of the property.

7. Will allowing outside groups to use our church building subject us to public accommodations laws?

It is possible. An activity like this one by your church may make it subject to local, state, and federal public accommodations laws, but it requires a more detailed analysis. You can find more insights in my ChurchLawAndTax.com article addressing a key decision by a federal court in Idaho. Your church also will want to consult with a qualified local attorney who can review the language of the relevant statutes and analyze them in relation to your church’s activities.

The bottom line is that the rental of your church property raises a number of important questions, and may expose the church to significant liability. You must decide if all of these risks are worth the minimal amount of rent that your church will receive.

One final thought: Sometimes a church allows groups to use its facilities free of charge. Doing so can still expose a church to a number of the concerns outlined above—such as local zoning requirements and various liability issues.

Get more help with navigating the use of your church building by outside groups through the downloadable resources Managing Church Facility Use , Understanding Church Insurance, and Church Issues: Same-Sex Marriage and Gender Identity.

Fraudulent Email Scheme Costs One Parish $1.75 Million

Two lessons for church leaders to draw from this unfortunate story.

Michael Batts, Jr., Mike Lee, and Mike Batts

A Catholic parish in Ohio was a recent victim of a major fraud perpetrated through the use of fake emails. According to news reports, the church was in the midst of a large construction project. Fraudsters used emails that appeared to originate from church workers’ email accounts to convince other church workers to change the bank account routing information for the church’s construction company.

As a result of changing the bank account information, the parish said wire transfers worth $1.75 million were never received by the construction company. Rather, the funds were misdirected to a separate bank account, out of which the fraudsters swept the funds. The church discovered the theft when the construction company contacted the church and inquired about overdue payments. The church said it immediately contacted local police, the construction company, and the bank. The Federal Bureau of Investigation (FBI) was later brought in.

Because news accounts and information issued by the church refer to both “hacking” and “spoofing,” it is not clear whether the perpetrators actually “hacked” the email accounts of church workers or “spoofed” them. Church officials did not return communications from BMWL (as we sought to learn whether the email accounts were actually hacked) as of the time this article was published. If the fraudsters actually hacked the church workers’ email accounts, then the emails instructing other church workers to change the bank account information were indeed from within the church’s internal email system (although not actually sent by the workers from whom they appeared to come). If the email accounts were spoofed, then the emails may have appeared to come from within the church’s system, but a closer look at the sender information should have revealed that they did not.

Either way, there are important lessons in this scenario.

One, any email communications that request or affect significant financial transactions or transfers for a church should be independently verified using means other than email (personal conversations, phone calls to known phone numbers of the persons thought to be sending the messages, and so on).

And two, with any electronic disbursements made by a church, it is also important to independently verify the accuracy of the recipient’s bank account information prior to sending funds—especially when the transfers are large in amount.

Here is a link to a news account covering this incident.

Adapted from a post originally published by Batts Morrison Wales & Lee (BMWL). Used with permission. Michael Batts, Jr. is the Director of Systems Innovation and Security for BMWL. Mike Lee is a partner and the National Director of Audit & Assurance services for BMWL. Mike Batts is the Managing Partner of BMWL and an editorial advisor for Church Law & Tax.

For more insights on information technology security, check out the following articles:

For general help with information technology and internal controls for financial activities, also check out the following resources on ChurchLawAndTaxStore.com:
Image: Getty

How to Select the Right Accounting Software for Your Church

From off-the-shelf solutions to cloud-based systems, church leaders weigh in on how to make the best choices.

Ruth Moon Mari

Selecting the right accounting software for your church can be an arduous, lengthy process.

Just ask Glenn Wood at Seacoast Church, a multisite church headquartered in Charleston, South Carolina, where the accounting software selection process took more than four years. After going with Sage Intacct, Seacoast Church Administrator Glenn Wood reached one big conclusion.

There’s no perfect solution.

“You as an individual church have to decide what your priorities are,” he said. “I am constantly telling churches, just because we picked Intacct doesn’t mean it’s the right solution. It was the right solution for us at the time.”

Choosing accounting software for a church involves a complex range of factors, including the church’s accounting needs, the number of people who will access the software, the training required, the security needs, and other areas unique to a given church.

Choosing Software

Church accounting software functions and prices span a wide range, said Nick Nicholaou, president of Ministry Business Services and author of Church IT: Using Information Technology for the Mission of the Church.

Nicholaou estimates that a church could find a minimal accounting software package for as little as $200 or spend up to $40,000, depending on the accounting needs.

A basic software package should provide a general ledger with the ability to produce a statement of activities and a balance sheet, all with a secure audit trail, said Nicholaou. At the complex end of software needs, large, multisite churches, for instance, might need a software program that can produce reports of expenses and income in aggregate or separated by campus.

In the past, Nicholaou said he encouraged churches to use software that integrated church management and accounting needs, but a number of new accounting programs can do the nonprofit fund accounting that churches need, so that’s no longer essential. (More on church management software (ChMS) later in this article.)

Small churches that primarily need a bookkeeper might rely on QuickBooks, while larger churches might need accounting software that provides analysis of expenses and other tools, Nicholaou explained.

TIP For specific information on QuickBooks, with advice for getting the most out of this accounting program, see these six tips.

“The type of software needed will have a lot to do with how you run the organization,” said Ralph Kammann, the controller at Willow Creek Community Church, a multisite church in the Chicago area. “When you have multiple sites, if you want to keep track of each site from a budget-performance perspective and help each site manage their expenses to live within their means, you need something more sophisticated.”

Wood agrees. Seacoast staff have used Sage Intacct for their accounting work since 2014, when they switched from a church accounting program provided by Shelby Systems, Wood said. Church administrators made the decision to switch after doing years of research.

“We looked at a number of packages for probably the better part of four years, analyzing options, trying to find one that fits, and trying to decide what features we needed,” he said. “In early 2013, we cranked it back up again and started looking for new options. We looked at a number of systems and it came down to two.”

Wood has been on staff at Seacoast for more than 20 years and has worked with three different accounting programs. Seacoast adopted Shelby Systems—a family of software programs that provides church management software, accounting software, and other tools—soon after he joined the organization. They started looking for different accounting software when the church moved to a multisite model in 2002, because Shelby had some limitations at the time that made it challenging to do accounting across multiple campus locations.

Create a “needs-and-wants” list

Before adopting its current accounting program in 2014, Seacoast’s accounting staff developed a detailed process to choose the best software, Wood said.

“We created a needs-and-wants list,” he said. “We created a criteria list so we could assess every package through the same filter. Rather than going to different companies and saying, ‘Tell us how great you are,’ we created a list and said, ‘Tell us whether you can do the things on this list.’”

An important item on Seacoast’s list involved choosing a program that made it easy to import and export data and had a good mobile interface.

Wood’s advice: To help create your own list, take your questions to churches similar to your own. But don’t talk just to the church’s top leadership. He said those who work directly with the program might have a better—more hands-on understanding—of how it works on a day-to-day basis.

Time to add ChMS?

Churches might also want to consider church management software (ChMS) with functions beyond accounting. Shelby Systems, for instance, has Shelby Next, which provides child check-in capability, church member profiles, a contact system, a calendar, and room reservation. While some church management programs also have accounting capabilities, it’s typically easy to transfer data from one program to another, so it’s not crucial that accounting and church management be integrated into one program, Nicholaou said.

Alex Barefoot, who co-pastors with his wife, Liz, at Eastside Church in Charlotte, North Carolina, has been on staff at several churches and, throughout his career, has used a number of different kinds of accounting and church management software. Eastside currently uses Planning Center ChMS to manage church programming and various tracking and scheduling needs. Specifically for accounting, the church uses QuickBooks but also receives help from Belay, an outsourcing company that provides bookkeeping assistance to churches and other nonprofits.

Belay charges clients based on their size. As a small church with 8 people on staff and around 400 regular attenders, Eastside pays $650 per month for access to a bookkeeper who can answer financial questions, process paychecks, and handle other aspects of the church’s finances.

“There’s also a freedom and a peace about making sure that all your taxes, all your insurance questions, and any legal questions that you might have are answered,” Barefoot said about the outsourcing help. “It keeps you out of trouble and gives you accountability.”

TIP For more about outsourcing financial operations, see “ The Outsourcing Option” and this Q&A on what churches need to know about outsourcing financial tasks.

Factor in training

Whatever software program a church chooses, training—typically provided by the software company, either with a software purchase or for an additional fee—is crucial to keep the software running smoothly. Training could even be an important factor to consider when choosing a software package.

Wood believes that spending money annually on training is important “because you’re keeping staff abreast of what’s new, what’s changed, and what features are available. It’s a small amount of money that a church can spend that pays off in huge dividends—from better efficiency from staff, less grumbling because people know how to use the system, and it keeps us from spending money on a new system.”

Regular training allows staff to make use of all the relevant features in a software package. Often, church staff want to switch software because their current program doesn’t have a particular capability—and with training, staff members sometimes realize that they just didn’t know how to make the current program produce the correct report, view, or other need, he said.

Barefoot has found that the amount of training needed for a program, and the degree of intuitiveness of the software, has a major influence on whether or not a program is useful. Along with the ease of using QuickBooks for accounting, he says his staff is very comfortable with their current church management software.

“You don’t have to have a master’s degree in computer programming to implement it,” he said. “That’s been the biggest thing for us that’s made us successful with Planning Center—it’s easy to use. They made it very simple.”

Barefoot found that software training is often expensive and most church staff have a low tolerance for church management or accounting programs that they find too complex. He recalls that one program he worked with in the past required a two-day offsite staff training and cost $1,400. Specialists would conduct site visits, but those were also expensive, he said.

“It was hard to train people,” he stressed, adding that the process felt like “your feet always seemed to be in quicksand.”

It’s important to have someone on staff who has a passion for a particular type of software—especially if it’s complex or difficult to learn—said Barefoot, because that person is motivated to help others better understand how to use the software. If that’s not the case, a church is simply wasting money. “You don’t want to invest money to get the training done and no one uses it,” he said.

Don’t forget about security

There are some security features that churches of all sizes should consider, Nicholaou said.

Here are three:
  • Protection for sensitive financial and donor information.
  • Overall protection for data storage and access.
  • A secure audit trail, making it impossible for data entries to be altered or deleted after they are added to a ledger.

Regarding the third point, effective audit trails help churches guard against fraud. Gordon-Conwell Theological Seminary’s Center for the Study of Global Christianity estimated that churches around the world would lose $68 billion to church fraud and crime in 2019—more than the $60 billion spent on global foreign missions. Brotherhood Mutual Insurance Company notes that the actual amount of money embezzled from churches is likely much higher, as much church fraud is never discovered or reported.

Most accounting programs, including QuickBooks, provide an audit trail. But if a church were simply entering revenue and expense figures on an Excel spreadsheet, it should definitely consider an upgrade, said Nicholaou.

“The church has an inherent need to be able to demonstrate accountability and transparency in the way it manages its finances, which are, in effect, a trust from the congregants,” he said.

“Without a good audit trail, it might be harder to spot embezzlement activity,” Nicholaou added. “There are a lot of different ways to embezzle, and a secure audit trail doesn’t guarantee that it won’t happen or will be apparent early, but it helps.”

Key point. Software with a secure audit trail accomplishes two things: It helps churches account for their finances transparently to church members, boards, and others, and it strengthens internal control as it sets up barriers to fraud and embezzlement.

Transitioning to the cloud

Intacct, the accounting program that Wood uses at Seacoast Church, is cloud-based. This means that churches like Seacoast that use the program pay a recurring fee—in the case of Intacct, an annual license fee per user—to access the program, which is then maintained online with frequent downloads available to update software. This approach is becoming more common, Nicholaou said.

“Most solutions are offering cloud-based approaches now, and those solutions that allow you to install it locally are shrinking in number,” he added.

While relying on internet storage and web-based servers to store and manage financial data could make church accounting staff nervous, Nicholaou said cloud-based storage is often more secure than what a church can access on-site.

Still, it would be important for churches to understand how those cloud-based programs store and access information. It comes down to asking good questions of potential providers and making sure you can trust the provider you choose.

“The fact is that, depending on the solution provider they’re turning to and how well they’ve done their due diligence, the information in the accounting system is safer and better protected in the cloud, and probably more secure in the cloud, than it would be if it were purely a local solution,” he said.

Further, churches should ask to see a SOC-1 report—an audit report on data security and reliable connectivity—from vendors that will store financial data, Nicholaou said. The reports assign datacenter certification levels ranging from 1, the least reliable, to 4, the most reliable, and churches should typically use a provider whose datacenter has been rated at Tier 3 or higher.

TIP For additional information about SOC reports, see Nicholaou’s book Church IT: Using Information Technology for the Mission of the Church and the article “When Churches Neglect Payroll Taxes.”

For Wood at Seacoast, Intacct’s web-based nature was an important feature. With nearly 300 employees across 13 locations accessing financial data, the web-based program allows people to obtain the information they need from a variety of contexts.

“Being web-based has helped us,” he said. “Everybody can get to data on their phone and iPad and access the data they want. For us, having a web-based system was a big plus. As we looked at where we are and where we are going, it worked for us.”

It comes down to individual needs

Still, each church’s ideal solution is different.

A small church with 100 or fewer members might just need an inexpensive solution to track finances appropriately, while medium-sized churches might find that they need to track designated fund balances and minister payrolls, and larger churches might need to accommodate multiple staff, budgets, departments, and areas of ministry, Nicholaou said.

“You need to have a right-size kind of an approach,” he said.

Software to consider

Barefoot, Kammann, and Wood offered some helpful insights into the following accounting programs they have used with their churches. By no means exhaustive, these suggestions should give churches some options to explore.

Barefoot:

Planning Center. This software package recently incorporated a donor management feature that allows users to track donations, create donor statements, project future donations, and export data to other programs. The interface smoothly integrates donor profiles with church attendance and other information.

QuickBooks. This program is commonly used in churches and other small businesses, so it could be a familiar option if someone with small business experience is helping with church accounting. It is easy to use for people who are not trained accountants, with a simple, easy-to-read interface.

Kammann:

Microsoft Dynamics. It’s a fully integrated accounting software package. It has a full range of features beyond general accounting, including accounts payable, accounts receivable, and purchasing. It is server-based.

Wood:

Blackbaud. Blackbaud is a legacy system that has been around for a long time. They are based in Charleston and a number of their employees attend Seacoast.

Shelby Systems. It’s a solid platform with great people who are passionate about ministry.

Intacct. Integrates a lot of data. We created formulas in the program and it generated the reports we wanted. The software makes it possible to pull in statistical data and incorporate it into reports. Comparing data across campuses got easier because it all lived within the system.

Ruth Moon Mari is an assistant professor of media and public affairs at Louisiana State University.
Image: Getty

Q&A: How Do We Handle Payroll and Benefits for an Employee with Dual Roles?

When nonexempt employees split their time between the two parts, overtime can occur.

Frank Sommerville, Attorney, CPA
Bio
An employee splits his time between teaching preschool (24 hours per week) and serving as a custodian (16 hours per week). Our contract for preschool teachers doesn’t include benefits whereas our contract for other church employees, working more than 32 hours per week, are eligible for benefits. In total, he works 40 hours a week. Does that make him eligible for benefits as a full-time employee? Also, how do we handle overtime pay?

When a church also operates a preschool or school, the two parts of the church frequently have differing employee handbooks, benefits, and compensation structures.
This dual nature arises from the state regulations imposed on daycare centers or preschools and schools.
Let’s first address the issue of overtime.

The US Department of Labor views the church and its preschool or school as one employer. When nonexempt employees split their time between the two parts, overtime can occur. The church will owe overtime every time a nonexempt employee works more than 40 hours in a week (more than 8 hours in 24 hours in California).

Assuming the employee is paid a different rate when working for one part of the church than when working for the other part, the church will calculate overtime using a blended hourly rate.

For example, the employee is paid $20 per hour while working for the church as a custodian but $10 per hour when working for the preschool. If the employee worked 30 hours for the church and 20 hours for the preschool, the church owes the employee for 10 hours of overtime pay.

Let’s first figure his base pay for each job: 30 times $20 per hour equals $600 for his custodial work; 20 times $10 per hour equals $200 for his preschool work. His base pay for this week, then, is $800. Now let’s figure his per-hour blended rate by dividing the base weekly pay by the hours worked: $800 divided by 50 equals $16 per hour for the blended rate. Next the church needs to calculate the overtime pay. Overtime pay is computed at 150 percent of the hourly rate. Since the church included the hourly rate for the 10 hours of overtime in the base weekly pay, we only need to add the remaining 50 percent of the blended hourly rate to the weekly pay. The church must add $16 times 10 hours times 50 percent. This, then, equals overtime pay of $80. (You can find the DOL’s guidance on overtime pay here.)

As for benefits, the IRS and state benefit laws will also view the church as a single employer for fringe benefits.

The church needs to check the terms and conditions of each fringe benefit to determine the employee’s eligibility to participate.

Many fringe benefits must be available to qualifying employees without discrimination—based on federal and state fringe benefit laws.

The church must combine the hours to determine whether the shared employee has inadvertently become eligible for a fringe benefit under either part of his employment.

For example, if the church offers a qualified retirement benefit under Section 403(b), the church must offer employees access to the retirement benefit if an employee works 1,000 hours or more during a calendar year. T

he hours worked are combined between the preschool and church to determine whether the church must offer access to this retirement benefit.

You should also verify that he has other group health insurance since he declined your group health insurance. If he is not enrolled in another qualified group health insurance plan, he cannot opt out of your plan per current rules under the Affordable Care Act.
Frank Sommerville is a both a CPA and attorney, and a longtime Editorial Advisor for Church Law & Tax.
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Who Can Sign Church Documents?

A court case in South Carolina offers insights and warnings for giving signatory authority.

Richard R. Hammar, Attorney, CPA
Bio

A South Carolina court ruled that an agreement entered into by two church board members to pay a monthly stipend to the widow of a deceased pastor was unenforceable because the board members lacked the authority to enter into such an agreement. Jenkins v. Refuge Temple Church of God, 818 S.E.2d 13 (S.C. App. 2018). This feature article will review this ruling and more broadly address the key legal issues associated with signatures and signature authority. It is important for church leaders to be familiar with this information to avoid both the unenforceability of contracts and the potential personal liability for those who sign contractual agreements on behalf of a church.

Key point 4-06. Clergy who sign legal documents in their own name with no indication that they are signing in a representative capacity on behalf of their church may be personally liable on the document.

Key point 6-06.2. Officers and directors must be legally authorized to act on behalf of their church. Legal authority can be expressed, implied, inherent, or apparent. In addition, a church can ratify the unauthorized actions of its officers or directors, but this is not required.

Editor’s Note:Editor’s note: The numbers with each key point coincide with the numbered key points in Pastor, Church & Law, Fifth Edition (available on ChurchLawAndTaxStore.com, and the Legal Library on ChurchLawAndTax.com).

Background

A church’s pastor founded the church in 1997. The pastor incorporated the church under state law by filing articles of incorporation with the secretary of state. The initial board adopted bylaws in 1997. The bylaws provide that congregation members would be nonvoting members and the board members would be voting members. The bylaws authorize the board to manage the affairs of the church, impose upon the board a fiduciary obligation to the church, and specify that the board will consist of no less than three members. The bylaws establish that a majority of the board shall constitute a quorum, and specify that the act of a majority of the board shall be the act of the board. The bylaws grant the pastor the authority to fill any vacancy in the board with the advice and consent of a majority of the present board. The bylaws allow the board to authorize any officer or agent of the church to enter into any contract or execute and deliver any instrument on behalf of the church.

In 2002, the board, consisting of the pastor and two other individuals, held a special meeting to consider and vote on an employment agreement titled “Pastor’s Employment and Retirement Agreement” (the Agreement) to retain the pastor as the church’s pastor for life. After discussion, a board member made a motion to approve the Agreement, and the board unanimously adopted the Agreement.

Section four of the Agreement, titled “Death of Pastor,” provides:

In the event of the pastor’s death, if pastor is survived by his spouse, a monthly sum equivalent to the pastor’s monthly salary and housing allowance, which will become salary at the time of his death shall be paid to his spouse for the remainder of her life, even if she leaves the church.

Section six of the Agreement explains the Agreement is binding on all parties, revokes all prior employment agreements with respect to the pastor, and states, “It is also agreed that in the event of Pastor’s death or total disability, this Agreement shall become irrevocable.”

The church employed the pastor until his death in 2004. After his death the church began paying his spouse $1,575 each month. In 2005, the church’s new pastor received a letter from an accounting firm hired by the church, informing him that the former pastor’s spouse had been receiving a housing allowance and salary from the church and recommending the church reclassify the payment as a retirement plan as opposed to income for tax purposes because the payments “weren’t quite legitimate.”

In 2010, the church wrote a letter to the spouse informing her that the church could no longer afford to keep paying her the monthly amount of $1,575. The letter explained the church had been compensating her “in honor of the service of yourself and your late husband, our pastor . . . and to help you financially during the transition.” The letter informed the spouse that she would receive the regular payment amount for February 2010 and March 2010, and then a reduced amount of $500 from April 2010 until December 2010, at which time the payments would cease.

In 2011, the spouse sued the church alleging breach of contract for failure to pay wages under the state’s Payment of Wages Act. The trial court ruled in favor of the spouse, concluding that (1) the Agreement was a valid and enforceable contract, (2) the board had the authority to execute the Agreement, and (3) the church had honored the Agreement from 2004 to January 2010. But the court found that the spouse was not entitled to recover damages under the state’s Payment of Wages Act. The church appealed.

Jurisdiction

On appeal, the church argued the civil courts lack jurisdiction to rule on the ecclesiastical matters presented in the case. The appeals court disagreed:

(1) [C]ourts may not engage in resolving disputes as to religious law, principle, doctrine, discipline, custom, or administration; (2) courts cannot avoid adjudicating rights growing out of civil law; (3) in resolving such civil law disputes, courts must accept as final and binding the decisions of the highest religious judicatories as to religious law, principle, doctrine, discipline, custom, and administration. . . . Where a civil court can completely resolve a church dispute on neutral principles of law, the First Amendment commands it to do so.

The church insisted that the “ministerial exception” bars courts from resolving claims concerning contracts between a church and a minister, citing the United States Supreme Court’s unanimous ruling in Hosanna-Tabor Evangelical Lutheran Church and School v. E.E.O.C., 565 U.S. 171 (2012). The court disagreed:

We believe the ministerial exception . . . is inapplicable in this situation. In Hosanna-Tabor, the Supreme Court of the United States held that a “ministerial exception” grounded in the First Amendment barred an employment discrimination suit brought on behalf of a minister, challenging her church’s decision to fire her. The Supreme Court explained that “the exception . . . ensures that the authority to select and control who will minister to the faithful . . . is the church’s alone.” However, the Supreme Court clarified that “we express no view on whether the exception bars other types of suits, including actions by employees alleging breach of contract. . . .”

In contrast, the parties in this case are not asking this court to resolve an employment discrimination suit or a dispute over who will lead a church, but rather to determine the validity of a contract between a church and a former minister’s wife. Additionally, the Supreme Court expressly refused to hold whether the ministerial exception bars other types of suits, such as breach of contract, which is the type of action brought in this case. Thus, we find the ministerial exception is inapplicable.

The church next argued that the resolution of the issues in this case would require extensive inquiry into religious matters and this court was therefore unable to adjudicate this dispute under neutral principles of law. The court disagreed, noting that “in applying neutral principles of law to the facts of this case, we find a court’s exercise of jurisdiction over this matter would not violate the federal or state constitutions. This case does not contain disputes as to religious law, principle, doctrine, discipline, custom, or administration. This case presents a temporal issue: the validity of a contract involving a church and a former minister’s wife providing for monthly payments by the church to the wife after the death of her husband. Where . . . a church controversy necessarily involves rights growing out of a contract recognized by the civil law, . . . civil tribunals cannot avoid adjudicating these rights.” The court acknowledged that “although we recognize we must accept ‘as final and binding the decisions of the highest religious judicatories of the church as to religious doctrine and discipline,’ we find the resolution of this dispute requires only ‘the application of neutral principles of contract law and very little inquiry into religious law. . . .’ Accordingly, we find the trial court did not err in exercising jurisdiction over this case.”

The contract

The church’s next argument on appeal was that the trial court erred in finding the Agreement valid because the board that executed the Agreement lacked proper authority. Specifically, the church claimed that the pastor had improperly appointed two of the members of the board who executed the Agreement, thereby undermining its legal validity. The court agreed with the church: “Because the method of electing a hierarchical church’s board members is a matter of church polity, we must defer to the decisions of the highest ecclesiastical body of the church, as dictated in the Official Manual of [the parent denomination]. . . . The Official Manual provides: ‘In all cases where the laws require a special mode of election of church [directors], that mode must be followed. . . . Where, however, no particular mode of election of [directors] is established or required by law, then the [directors] shall be elected by a majority of the members of the congregation.’”

The court concluded:

Accepting these determinations in the Official Manual, we . . . are bound to accept the Official Manual’s mandate that the majority of the members of the congregation shall elect the members of the Board. Accordingly, we believe the pastor improperly appointed [the two Board members]. They were qualified members of the church at the time they were selected to serve on the Board, which complied with the Official Manual. However, the pastor appointed both of them to the Board. Although the church’s bylaws grant the pastor the authority to fill any vacancy on the Board with the advice and consent of a majority of the present Board, these bylaws conflict with the Official Manual’s requirement that the majority of the congregation’s members elect the members of the Board. Therefore, we find the pastor improperly appointed both [members] to the Board. Because neither [Board member] was properly elected to the Board, the Board lacked the authority to execute the Agreement, and we hold the trial court erred in finding the Agreement a valid and enforceable contract.

Application

This case introduces the important topic of signing church documents. The key point is that only persons who are duly authorized to sign church documents have the legal authority to do so.

Here are seven points for church leaders to note regarding signatures:

1. Constitutional considerations

The court concluded that the civil courts are not barred by the First Amendment religion clauses from resolving all church disputes. Rather, they are only barred from resolving disputes concerning “religious law, principle, doctrine, discipline, custom, or administration.” The United States Supreme Court acknowledged this principle in a landmark case in 1871: “Whenever questions of discipline, or of faith, or ecclesiastical rule, custom, or law have been decided by the highest of these church judicatories to which the matter has been carried, the legal tribunals must accept such decisions as final, and as binding on them, in their application to the case before them.” Watson v. Jones, 80 U.S. (13 Wall.) 679 (1871).

2. The ministerial exception

The court noted that the “ministerial exception” doctrine, which generally bars the civil courts from resolving employment discrimination lawsuits between churches and clergy, has limits. The doctrine did not apply in this case because “the parties . . . are not asking this court to resolve an employment discrimination suit or a dispute over who will lead a church, but rather to determine the validity of a contract between a church and a former minister’s wife.”

3. Legal authority

This case illustrates the importance of having a church’s legal documents signed by persons having legal authority to do so. In this case, the two purported board members had not been elected according to the process described in the parent denomination’s Official Manual, and therefore they had no legal authority to act on behalf of the church.

CASE STUDY First Born Church of the Living God v. Bank South, 472 S.E.2d 469 (Ga. App. 1996)

A dispute arose in a church over the tenure of its pastor. The church board held an emergency meeting, at which the pastor was removed and a new pastor was appointed. The board also modified its bank resolution by removing the dismissed pastor’s name as an authorized signature and requiring that only those checks and withdrawals having the approval of the new pastor be honored. The bank asked a court to determine who was authorized to control the church’s bank accounts. It sought to protect itself against liability in the event that it honored checks written by both the former and current pastors of the church. The court ruled that the board’s actions were lawful, and concluded that only those checks and withdrawals having the approval of the current pastor should be authorized by the bank. The former pastor appealed. A state appeals court reversed the ruling of the trial court. It concluded that the board’s action in changing the bank resolution was invalid because it was not done in compliance with the church’s constitution. The court quoted the following language in the church’s constitution:

Any legislation passed by the board shall be presented to the [pastor] for his approval and signature. If the legislation or any part of it fails to meet his approval, it is his privilege to veto the same and send it back to the board, along with his reasons for the veto. The legislation must then be revoted upon by the full board, and must be passed by a two-thirds majority before it can become law.

The court concluded that the board’s action was legally invalid because it did not comply with this procedure. The court observed: “The evidence indisputably shows that the board failed to follow the procedural requirements of the church constitution when it transacted its business because no legislation was ever presented to [the former pastor] for his approval and signature.”

4. Personal liability for unauthorized signature

Persons who sign contractual agreements on behalf of a church may be personally liable for any breach of the agreement. Whether clergy will be personally liable on contracts they sign depends upon two factors: (1) whether their employing church is disclosed in the contract, and (2) whether they sign in a representative capacity, such as “Rev. John Smith, President.” If both elements are observed, a minister ordinarily will not be personally liable on the contract. The church’s identity usually is disclosed by listing the church as one of the parties to the contract. Clergy who sign a contract on behalf of a church without disclosing their title or office will not be personally liable if the church is identified in the contract and the circumstances clearly reveal that they signed in an official capacity. This view, however, is not universally accepted. As a result, ministers should be careful to disclose their representative capacity when signing a contract on behalf of a church, and clearly identify the church in the body of the contract as the party to the agreement.

A leading treatise on corporation law states that “if there is no disclosure of the [corporation] in the body of the contract, the mere appending of words descriptive of the signer as, for example, the word ‘president,’ would not be sufficient of itself to relieve the signer of individual liability.” Fletcher Cyc. Corp. § 3034.

This analysis assumes that the contract was authorized by appropriate church action. If a minister signs a contract that has not been so authorized, the general rule is that he or she will be personally liable on the contract. The church, of course, can “ratify” an unauthorized contract, in which case the church becomes liable for it.

In many cases, it is unclear whether a minister has been authorized to sign a contract on behalf of the church. This obviously is a very important question, for clergy who sign contracts without authorization may be personally liable. Clergy should be certain that the contract has been duly authorized by appropriate action and that they are authorized to sign. The church’s charter and bylaws must be reviewed, as well as resolutions of the church board and pertinent state laws. To illustrate, many churches have adopted bylaws requiring that the disposition of church property be authorized only by congregational vote. Even if the board of deacons or trustees of such a church independently approves the disposition of church property, any subsequent contract of sale would be unauthorized. And even if the church congregation has approved the sale in a church business meeting, the minister should be satisfied that all of the procedural requirements for such a meeting—such as notice and quorum—have been met.

Clergy should not assume that they are authorized to enter into contracts on behalf of their church simply by virtue of their position. One court observed:

The mere proclaiming of [oneself] as the religious superior of the congregation may suffice to establish that fact in spiritual matters of his church, but it does not affect legal superiority in secular matters. There must be clear and convincing evidence of congregational acknowledgement of and acquiescence in the concept of legal superiority and authority over church business and property matters. Gospel Tabernacle Body of Christ Church v. Peace Publishers & Co., 506 P.2d 1135, 1138 (Kan. 1973).

A minister of an unincorporated church who signs a contract on behalf of the church may be personally liable on the contract even if the church is identified in the contract and the minister signs in a representative capacity. Several courts have concluded that ministers and trustees of unincorporated churches who sign contracts on behalf of their churches will be personally liable on them.

CASE STUDY Hind-Marsh v. Puglia, 665 So.2d 1091 (Fla. App. 1995)

A corporate officer signed a check in the amount of $43,000 on behalf of his company. The company’s name was imprinted on the check, so there was no doubt that it was an obligation of the company. However, the officer’s signature did not indicate that he was signing in a “representative capacity”—that is, as a representative of the company rather than in his personal or individual capacity. A bank dishonored the check on the basis of insufficient funds, and the recipient sued the officer directly. The officer insisted that he could not be personally liable for the amount of the check, since the company’s name had been imprinted on it. The court disagreed. It referred to a state law specifying that an authorized representative who signs his or her name to an instrument “is personally obligated if the instrument names the [company] represented but does not show that the representative signed in a representative capacity.” In summary, the officer was personally liable for payment of the check, even though the company’s name was imprinted on it, since the officer did not indicate clearly that he was signing in a representative capacity.

Contracts Checklist

Clergy should refrain from signing contracts unless they are certain that:

1. the contract has been properly authorized;

2. they are authorized to sign on behalf of the church;

3. the church is clearly identified in the contract as the party to the agreement; and

4. the minister signs in a “representative capacity” (for example, as “authorized agent” or “president”).

5. Consideration

The South Carolina court failed to address the legal requirement of “consideration.” In the typical contract, one person (the “promisor”) makes a promise to do something for the benefit of another (the “promisee”), in return for which the promisee provides the promisor something of value. The value provided by the promisee to the promisor in exchange for the promisor’s promise is referred to as “consideration.” The requirement of consideration is what distinguishes legally enforceable promises (i.e., contracts) from unenforceable promises. What consideration did the church receive for its promise to pay the widow a monthly stipend? If it in fact received nothing, then the Agreement would be legally invalid and unenforceable.

To illustrate, a Tennessee court ruled that a church’s decision to make biweekly payments to a former pastor’s widow was unenforceable since the church received nothing of value (“consideration”) in return for its commitment, and therefore the church’s decision to discontinue making the payments did not amount to a breach of contract. Cochran v. Robinwood Lane Baptist Church, 2005 WL 3527627 (Tenn. App. 2005).

6. State nonprofit corporation law

The South Carolina court noted that since the church was organized as a South Carolina nonprofit corporation, “the governing law for determining the proper election of board members is the South Carolina Nonprofit Corporation Act.” However, the court pointed out that section 33-31-180 of the South Carolina Code provides: “If religious doctrine governing the affairs of a religious corporation is inconsistent with the provisions of this chapter on the same subject, the religious doctrine controls. . . .” Many state nonprofit corporation statutes have a similar provision.

7. Electronic signatures and signature stamps

Some churches use electronic signatures or signature stamps. Unless subject to strict controls, these forms of signature can result in financial losses. Consider the following case study.

CASE STUDY 710 F.3d 434 (D.C. Cir. 2013)

A church’s chief financial officer (the “defendant”) embezzled $850,000 in church funds, mostly by arranging increases in the church’s line of credit at a local bank. His technique was simple. As chief financial officer, he had access to digital versions of the signatures of at least four of the church’s officers. He used these to create phony corporate resolutions bearing the officers’ “signatures” and authorizing increased borrowing. His deeds eventually came to light after he was terminated on other grounds, and he was charged with several financial crimes, including aggravated identity theft (one for each of the officers), bank and wire fraud, making a false statement on a loan application, four counts of tax evasion, and first-degree fraud.

According to evidence introduced at trial, the defendant was hired by the church in 2001 and later became its chief financial officer. He had control over the church’s bank accounts, credit cards, and checks. He also was responsible for conducting “reconciliation” of the church’s accounts. Using his position of trust, he used various means to defraud the church. Evidence showed that he embezzled money from the church on a weekly basis. For example, he wrote himself numerous unauthorized checks in addition to his biweekly salary. He paid his home mortgage and personal credit card from church bank accounts. He also misused his church credit card to make numerous luxury purchases, including the purchase of three cars (a Lexus SUV, a Range Rover, and a Nissan Maxima); a $12,000 diamond ring; an addition to his home; high-end furniture, including a projection-screen home theater and leather seating; numerous vacations at four-star accommodations; and sports tickets, including courtside season tickets to professional basketball games.

The defendant was tried and convicted on 12 counts in federal district court, and sentenced to eight years in prison. The district court judge also ordered the defendant to pay $850,000 in restitution to the church. The judge also banned him from working in any capacity handling the finances of any other church or organization upon his release.

There are several lessons to be learned from this Case Study, but especially one: Digital signatures and signature stamps are easily susceptible to abuse and, at a minimum, must be stored in a secure location with restricted access. The risks are compounded when several digital signatures are collected. In this case, the embezzler kept the digital signatures of four church officers. It would be virtually impossible for a church to safeguard the digital signatures of multiple officers and directors, meaning that such an arrangement should never be adopted. Even a single digital signature should be avoided unless there is sufficient assurance that it cannot be misused. This is a high standard that many churches could not meet.

Key Point. A CPA audit will provide church leaders with a management letter highlighting deficiencies in internal control. This represents one of the most valuable benefits of an audit, and makes misappropriation of church funds less likely.

Key Point. Cases of embezzlement raise a number of complex legal and tax issues. Our recommendation is that you retain an attorney to assist you in responding to these issues.

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.
Image: Getty

Determining Financial Policies for Your Church

How to identify the policies needed for sound financial management.

Michael E. Batts, CPA
Bio

Does our church need a whistleblower policy? Is our conflicts-of-interest policy adequate? Determining which policies to create—and appropriately crafting them for a specific church—is an exercise that requires discernment. A policy that is not appropriate for a particular church, or a policy that is poorly drafted, may create more problems than it solves.

Important considerations before adopting a particular policy

In determining whether a church’s board should adopt a particular policy, the church should consider several factors. Among them are:
  • Whether the policy would be helpful in ensuring compliance with the law,
  • Whether the policy could help protect the church or its constituents,
  • Whether the policy will enhance the effectiveness of the church in carrying out its mission and purpose, and
  • Whether the policy fosters confidence and trust on the part of congregants or members.

Additionally, many key areas of day-to-day financial operations can be governed by staff-developed procedures without the need for board-adopted policies. For example, staff can adequately create and oversee procedures for reimbursing business expenses, managing accounts receivable collections, and implementing specific internal control practices.

Philosophically, some churches strive to minimize the number of formal policies they adopt. Once a policy is adopted, it requires monitoring and maintenance to ensure that the policy is complied with and that it is kept up to date.

Additionally, an argument can be made that the more policies a church has, and the more specific those policies are, the greater the risk of failure to comply with those policies. From a risk-management perspective, having a policy in place and failing to comply with it can sometimes create more exposure to liability than if the church did not adopt the policy in the first place.

But every church will benefit from certain financial policies. They usually can be categorized into two groups:
  • Policies that every church should probably have, and
  • Policies that churches should have if certain factors are present.

This article will explore both categories further.

Policies every church should probably have

Budget administration policy

Given the significance of the budgeting process for a church, provisions for approving and administering a church’s budget are often a component of the church’s bylaws. Whether in the bylaws or in a separate policy approved by the board, a church should have an authoritative document governing the approval and administration of its budgets.

A well-written policy will address approval and administration of the church’s budgets for operations, capital expenditures, debt principal reduction, and possibly auxiliary activities. Among other important provisions, the policy should specifically set the process for addressing and approving budget overages.

Conflicts-of-interest policy

A conflicts-of-interest policy addresses scenarios in which a person on the governing body (board) or otherwise in a position of leadership may benefit financially from a business arrangement or transaction involving the church. That can happen, for example, if the church buys goods or services from the leader, from his or her company, from one or more of his or her family members, or from any of their companies. Other examples include selling items to one or more of these related parties, renting property to or from a related party, and so on.

For good reason, federal tax law restricts the terms of certain transactions between tax-exempt churches and their leaders (or parties related to their leaders). Violations of federal tax law in this area can have dire consequences—not only for the church but for the individuals involved in the transactions and the individuals who approve the transactions. (See chapter 9 in Church Finance for more information about this important area of tax compliance.)

Additionally, state nonprofit corporation laws also typically provide for adverse consequences if a nonprofit corporation engages in an improper transaction with a related party. Further, transactions between a church and its “insiders” can easily result in greater public scrutiny for the church and adverse public relations.

Sometimes, a related-party transaction may be economically advantageous to a church. For example, a board member may sell property to the church for less than its value in order for the church to build a necessary new facility. Even when a related-party transaction is economically advantageous on its face, the church should consider whether public perception of the transaction will be positive.

A well-drafted conflicts-of-interest policy prescribes how a church and its leaders are to address potential business arrangements in order to ensure that they are proper and in the best interests of the church.

Executive compensation-setting policy

Compensation arrangements for a church’s top leaders have characteristics similar to the related-party business transactions addressed above in the description of conflicts of interest. A leader should never be involved in the decision-making process with respect to his or her own compensation.

As with related-party business transactions, federal tax law sets forth parameters for permissible executive compensation by tax-exempt churches. As with other types of related-party transactions, violations in the arena of executive compensation can have dire consequences.

A well-drafted executive compensation policy prescribes the process for setting executive compensation and documenting the process, along with the data supporting the decision.

Dishonesty, fraud, and whistleblower protection policy

While it might seem obvious, it is a good idea to have a policy that specifically prohibits illegal activity, fraud, and other financial improprieties. Such a policy removes any doubt about whether such conduct in a church is permissible.

A dishonesty, fraud, and whistleblower protection policy both prohibits improper activity and prescribes the process by which an employee can report apparent improprieties. It also establishes the manner in which a church addresses such reports. A provision of the Sarbanes-Oxley Act of 2002, a federal law, prohibits retaliation by employers against workers (“whistleblowers”) for reporting certain improprieties. A well-drafted policy will help a church avoid violating this law as well as controlling state law.

Here is a sample policy on dishonsety, fraud, and whistelblower protection:

Ethical and Legal Standards for Conduct

[Insert church’s name here] requires all of its directors, officers, and employees to observe high standards of business and personal ethics in the conduct of their duties and responsibilities. As employees and representatives of the Church, we must practice honesty and integrity in fulfilling our responsibilities and comply with all applicable laws and regulations.

Reporting Responsibility

It is the responsibility of all directors, officers, and employees to report actual or suspected acts of dishonesty, fraud, or illegal activity in accordance with this policy.

No Retaliation

No director, officer, or employee who in good faith reports a matter described in the preceding paragraph shall suffer harassment, retaliation, or adverse employment consequence. An employee who retaliates against someone who has reported a matter in good faith is subject to discipline up to and including termination of employment. This policy is intended to encourage and enable employees and others to raise serious concerns within the Church prior to seeking resolution outside the Church.

Reporting Violations

The Church maintains an open-door policy and suggests that employees share their questions, concerns, suggestions, or complaints with someone who can address them properly.

In most cases, an employee’s supervisor is in the best position to address an area of concern. However, if you are not comfortable speaking with your supervisor or you are not satisfied with your supervisor’s response, you are encouraged to speak with someone in the Human Resources Department or anyone in management whom you are comfortable approaching.

Supervisors and managers are required to report actual or suspected acts of dishonesty, fraud, or illegal activity to the Church’s Compliance Officer, who has specific and exclusive responsibility to investigate all reported violations. For suspected fraud, or when you are not satisfied or uncomfortable with following the Church’s open-door policy, individuals should contact the Church’s Compliance Officer directly.

Compliance Officer

The Church’s Compliance Officer is responsible for investigating and resolving all reported complaints and allegations concerning actual or suspected acts of dishonesty, fraud, or illegal activity and, at his or her discretion, shall advise the Executive Director and/or the audit committee.

The Compliance Officer has direct access to the audit committee of the board of directors and is required to report to the audit committee at least annually on compliance activity. The Church’s Compliance Officer is [insert title of designated Compliance Officer; for example, the chair of the audit committee]. [Note: If a church does not have an audit committee or its equivalent, change the reference to the finance committee or the board of directors itself.]

Accounting and Auditing Matters

The audit committee of the board of directors shall address all reported concerns or complaints regarding corporate accounting practices, internal controls, or auditing. The Compliance Officer shall immediately notify the audit committee of any such complaint and work with the committee until the matter is resolved.

Note: If a church does not have an audit committee or its equivalent, change the reference to the finance committee or the board of directors.

Acting in Good Faith

Anyone filing a complaint concerning actual or suspected acts of dishonesty, fraud, or illegal activity must be acting in good faith and have reasonable grounds for believing the information disclosed indicates a violation of the Church’s policy. Any allegations that prove not to be substantiated and which prove to have been made maliciously or knowingly to be false will be viewed as a serious offense subject to disciplinary action.

Confidentiality

Violations or suspected violations may be submitted on a confidential basis by the complainant or may be submitted anonymously. Reports of violations or suspected violations will be kept confidential to the extent possible, consistent with the need to conduct an adequate investigation.

Handling of Reported Violations

The Compliance Officer will notify the sender and acknowledge receipt of the reported violation or suspected violation within five business days. All reports will be promptly investigated and appropriate corrective action will be taken if warranted by the investigation.

Caution. No church should simply adopt a sample policy as their own without carefully evaluating its provisions and modifying or replacing them as necessary and appropriate for the church’s unique circumstances. In adopting language for a particular policy, churches should consult legal counsel experienced in church law to ensure it is appropriate for the church.

Document retention policy

The federal Sarbanes-Oxley law includes provisions prohibiting the destruction or falsification of documents subject to certain federal proceedings. Additionally, federal tax law and other federal and state laws allow regulatory authorities to examine the records of churches for various reasons (compliance with employment law, employee benefits law, and so on). Such laws also require churches to maintain appropriate records related to compliance with the laws. It is important for churches to maintain records that may be required to be produced in the event of an IRS or other regulatory examination.

Attorneys generally advise churches to adopt a document retention policy prescribing the types of records to be maintained and the duration of time that they will be maintained. In some cases, attorneys specifically advise that such policies require destruction of documents after the applicable retention period.

Donor privacy policy

In the current era of pervasive spam emails and data breaches, donors to churches increasingly want to know how their data will be used and protected once it is provided to the church. It is considered a best practice in the nonprofit sector to have a donor privacy policy and to make that policy readily available to donors.

Key elements of a donor privacy policy include informing the donor as to what kinds of information is gathered, how the information is used, whether it will be shared with others and under what terms, and how the donor may opt out of certain aspects of the church’s use of the data.

Donor privacy policies are, by their nature, specific to the church and its use of donor and member information. For example, some churches publish membership directories or similar resources and others do not.

Policy requiring board approval for the issuance of debt and other financial obligations

Many churches have provisions in the bylaws that require the board (or even membership) to approve the issuance of any debt above a certain threshold or the entering into any contractual obligation (e.g., a lease) to make ongoing payments in excess of a certain threshold. That is a good practice. An alternative to having such a provision in the bylaws is for the board to adopt a policy with such requirements. A bylaws provision or policy requirement could be worded along these lines (of course, the provisions should be tailored to the governance model of the particular church):

Board approval is required for the issuance of any debt instrument with a principal amount in excess of $__________; for permitting any encumbrance, mortgage, or lien on any property or asset of the church; or for entering into any contractual commitment not included in a board-approved budget to make ongoing payments (e.g., lease payments) totaling more than $__________.

Note: If the board wishes to require a supermajority of the members of the board to approve such commitments, such a requirement should be included in the bylaws. For example, the board may wish for such commitments to be approved by at least 75 percent of the board members currently holding office, as opposed to simply a majority of board members present at a meeting at which there is a quorum.

Policies churches should have if certain factors are present

Gift acceptance policy

A gift acceptance policy addresses a church’s practices for evaluating atypical gifts. Examples would be gifts accompanied by naming rights restrictions (e.g., that a particular building be named after the donor), gifts with restrictions not accommodated by existing restricted funds, gifts of real estate, gifts of personal property, gifts of ownership interests in privately held businesses, gifts of stock in foreign entities, and so on.

The policy should address what parties or groups in the church have authority to evaluate and accept gifts covered by the policy and the factors or criteria to be considered in making such decisions.

A gift acceptance policy is appropriate for churches that receive atypical gifts with some frequency. Even churches that rarely receive such gifts may benefit from such a policy.

Executive expense reimbursement policy

A well-drafted expense reimbursement policy will describe who is covered by the policy, parameters for expenses that will be paid or reimbursed by the church, and documentation requirements. For example, some churches adopt policies prohibiting payment or reimbursement for alcohol, first-class travel, room service, movies, or other items. Whether a church formally adopts such a policy or not, it should, of course, maintain practices that comply with applicable tax law.

Other policies

The policies described in this article are not intended to constitute an exhaustive list of financial policies that may be appropriate for a church board to adopt. Depending on the specific circumstances, additional policies may be helpful or even necessary. Other policies that may be considered include, but are not limited to:
  • Any policies required as a matter of law. The church’s legal counsel can help determine what specific policies may be required as a matter of law. (For example, federal tax law requires private, nonprofit, tax-exempt schools, including those operated by churches, to adopt and apply a policy of racial nondiscrimination.)
  • Policy for spending restricted funds. In order to avoid misunderstandings and possible conflicts, churches that receive significant contributions restricted for particular purposes may benefit from a policy that clearly delineates who in the church has the authority to spend the restricted funds.
  • Investment policy. Churches with significant investment portfolios should have an investment policy clearly describing the church’s investment risk tolerance and specific parameters for investment portfolio allocation. Churches should ensure that, among other things, their investment policy and practices are in conformity with applicable state law. Investment policies are, by their nature, specific to the church, its risk tolerance, and its investment objectives.
  • Joint venture policy. For churches that engage in joint venture activities with for-profit companies, a joint venture policy may be necessary to ensure compliance with applicable tax law. Churches considering entering into joint venture arrangements should do so only under the advice of appropriately experienced legal and tax counsel.

This article is adapted from Church Finance by Michael E. Batts. Church Finance includes a number of sample policies.
Michael (Mike) E. Batts is a CPA and the managing partner of Batts Morrison Wales & Lee, P.A., an accounting firm dedicated exclusively to serving nonprofit organizations across the United States.

New Malware Attacks Routers: What Churches Should Do

Is your church at risk?

The FBI recently made a formal PSA about a piece of malware called VPNFilter that is infecting routers used in homes and small businesses at an alarming rate. The difference in this strain versus others is that no one is quite sure what the impact will be, since it is a very sophisticated piece of malicious software.

What VPNFilter malware does

The malware uses default credentials to infect routers, meaning that it can be avoided by changing passwords and other security on devices. It “sniffs” network data where an infected device is physically located, gathering the passwords, usernames, and other credentials on that network. This can include supervisory control and data. And VPNFilter malware can serve as a relay point to hide the origin of incoming attacks that later use that information.

This software installs itself in three stages, and the impact of the third stage is not well known. The FBI has advised that everyone should reboot their routers, under the belief that this will mitigate the malware and prevent the third stage from executing in the future. However, this is not entirely correct in a technical sense.

Security engineers at Cisco Talos and Symantec recommend that people and organizations who own affected devices do a factory reset. This will remove the malware, but it also restores the router to all original settings. Because of the design of the malware to operate secretly in stages, it is difficult to tell if a router has been infected. So if your church’s router is listed below, you will want to have your internal IT resource or contracted IT provider perform a factory reset and reconfiguration of the router.

Steps churches should take

Protect your church’s router by taking the following steps.

1. Check to see if you are using any of the following routers:

  • ASUS: RT-AC66U, RT-N10, RT-N10E, RT-N10U, RT-N56U, RT-N66U
  • D-Link: DES-1210-08P, DIR-300, DIR-300A, DSR-250N, DSR-500N, DSR-1000, DSR-1000N
  • Huawei: HG8245
  • Linksys: E1200, E2500, E3000, E3200, E4200, RV082, WRVS4400N
  • Mikrotik: CCR1009, CCR1016, CCR1036, CCR1072, CRS109, CRS112, CRS125, RB411, RB450, RB750, RB911, RB921, RB941, RB951, RB952, RB960,
  • RB962, RB1100, RB1200, RB2011, RB3011, RB Groove, RB Omnitik, STX5
  • Netgear: DG834, DGN1000, DGN2200, DGN3500, FVS318N, MBRN3000, R6400, R7000, R8000, WNR1000, WNR2000, WNR2200, WNR4000, WNDR3700,
  • WNDR4000, WNDR4300, WNDR4300-TN, UTM50
  • QNAP: TS251, TS439 Pro, and other QNAP NAS devices running QTS software
  • TP-Link: R600VPN, TL-WR741ND, TL-WR841N
  • Ubiquiti: NSM2, PBE M5
  • UPVEL: Unknown models
  • ZTE: ZXHN H108N

2. If your router is listed above, perform a factory reset. This is typically accomplished by using something small and pointed, such as a straightened paperclip, to push the reset button on the back of the unit for 10 to 30 seconds (time varies by model). Note that you will need to set up the router again and reconnect devices that use it. Visit your router manufacturer’s website for instructions on performing a factory reset and setting up your router.

3. Whether or not your router is on the list above, you should change the password from the default. Visit your router manufacturer’s website for instructions. Note that if you do a factory reset, you will need to change the default password after performing the reset.

—Lisa Traina

This article is adapted from the blog post “Half a Million Routers Are Infected with Malware—Is Yours”? The post originally appeared on CapinCrouse.com. Used with permission.
Image: Getty

Best Practices for Avoiding Cyberliability Problems

These best practices can help prevent cyberliability problems, including data breaches.

Bobby Ross Jr.

Last Reviewed: August 28, 2024

No amount of cyberliability insurance coverage can protect a church against a damaged reputation and loss of trust. That’s why it’s important to take steps to keep data breaches and other technological mishaps from happening in the first place. “Prevention is extremely important, and it doesn’t have to be that expensive,” stressed Nick Nicholaou, co-author of Church IT, Third Edition.

Something as innocent as offering free public wireless networking can get a church in trouble, according to Nicholaou.

Nicholaou gave an example from several years ago. A Missouri church neither password-protected nor adequately managed its open Wi-Fi by turning it off when it wasn’t needed. “There was a guy that was pulling into their parking lot in the evenings, and he was distributing child porn through their public Wi-Fi connections,” Nicholaou said. “When the FBI determined what the IP address the child porn was coming from, they knew it was such-and-such church, so they swooped in and confiscated all the computers” and the church’s servers.

Even though no one with the church was involved in the crime, the church ended up on the news and staff members lost access to their computers for months. “That was a very heavy cost for that church, and it could have been prevented very easily and for almost no cost,” he said.

Along with addressing potential hacking and cybercrimes, churches also must work hard to maintain their integrity in copying and sharing information online, said Frank Sommerville, an attorney and senior editorial advisor for Church Law & Tax. “No church would knowingly steal someone else’s property and use it in their newsletter,” he said. “But [they think], ‘Oh, it’s on the internet, so it must be free.’”

In reality, most copyright laws do apply to churches, said Susan Fontaine Godwin founder of Christian Copyright Solutions. “Many churches and church leaders have a lack of knowledge,” she said, “and they sometimes just don’t even think about the way they might be using copyrighted material, and that they could be at risk of infringement.”

“There are some exemptions which cover churches and religious organizations,” she added. “But for the most part, a church would be viewed under the copyright law pretty much in the way that any business or organization would.”

Another crucial issue for churches to take into consideration is member privacy, according to Sommerville. He cited the case of a church that posted Vacation Bible School pictures and then discovered that some of the children were part of a family in a witness protection program.

“What we recommend is, if you’re going to take pictures, whether it’s broadcasting your Sunday services or Sunday school activity, you post signs in your parking lots and at your entrances,” advised Sommerville, noting that “the signs give people an opportunity to turn around and go home if they don’t want to be photographed or recorded.”

Jeremy Thompson, an information security expert, offers these tips:
  • Engage third parties to host payment information and Social Security numbers so that this sensitive information does not reside with the church. Utilize established firms who have an established presence. Do not look to be anyone’s biggest customer. Find someone for whom these transactions are a core competency. It may be your local financial institution, it may be a niche-specific provider, or it may be a nationwide presence, like PayPal.
  • Use strong security defense tools to protect your device and data. Enabling software firewalls on your device will help fend off hacking attempts and use of encryption for sensitive data is the best method to protect it, especially if the data must be stored on a computer by a church staff member (for example, a youth pastor who needs to bring medical information about youths on his laptop for a missions trip overseas). Keeping antivirus, anti-malware up to date and having a personal firewall enabled are the bare minimum tactics you should always consider when connecting to a public network or internet. Ensure all software has current security patches or fixes applied. Use strong passwords on all laptops and desktop computers, and ensure all accounts have strong passwords. When possible, utilize multifactor authentication, such as a fingerprint swipe or “soft token,” and use disk encryption to protect sensitive information.
  • Educate staff to exercise caution when opening and clicking through email. Be suspicious of email you aren’t expecting, either based on the sender or content. Do not click on unfamiliar links. If you have doubts, follow up with the sender via a separate, new email (not a reply) or via phone to verify the legitimacy of a request. Follow the safety practices outlined by the National Cyber Security Alliance.
  • Develop prayer request distribution best practices. Keep any personal or sensitive details out of the distributed prayer request. Do not pass along anything other than publicly available information without written consent. (You can learn more about privacy rights at PrivacyRights.org.)
  • Establish or enforce a social media use policy. A social media policy should include a list of do’s and don’ts to guide acceptable behavior. It should specify who can publish content on the church’s behalf. It should give guidelines as to the use of parishioners’ names or sensitive information. Social media are more akin to a press release rather than a church newsletter, so keep in mind that your messages and posts may be read by the general public, as well as your members.
Related Topics: | Posted: Last Reviewed:

Beware of This “Donor” Scam

Why a refund request for a donation should ring alarm bells.

Michael E. Batts and Danny Johnson

A very kind but anxious fellow named Tom calls your finance office and informs your team that he just realized he accidentally submitted a donation to your church in the amount of $5,000. He meant for it to be $50.

He pleads for an immediate refund of the difference, since he is on a fixed income and a $5,000 charge to his account would create a terrible hardship for him. Your team wants to help the poor chap immediately. You check the records for your online gifts and sure enough, there it is: an online ACH gift from Tom, a new donor, in the amount of $5,000.

You quickly come to Tom’s rescue and issue a refund through the ACH system to him in the amount of $4,950. Now that you’ve saved the day, you can move on to more mundane things.

But two days later, you get a notice from your bank that the original $5,000 gift from Tom was rejected due to insufficient funds in his account. So, his original gift of $5,000 is debited from your church’s account as a chargeback.

You try to call Tom and the number is no longer a working number. After you think about it for a couple of minutes, the reality begins to sink in—you got scammed. You issued a refund for $4,950 of a $5,000 contribution you never actually received.

The scenario described above is happening with increasing frequency to nonprofit organizations across the United States. There are variations on the specific approach (for example, someone puts a check in the offering plate in a worship service, waits until they know the church would have deposited it, and then calls the church in a “panic” that they accidentally wrote the check for the wrong amount and they need a refund electronically immediately).

Fraudsters attempt to steal funds by taking advantage of the lag time associated with bank processing of payments from deposit accounts (that is, the time between the date the transaction was made and the date it clears the banking system).

What to Do

Refund requests for contributions made should ring alarm bells. A refund of all or part of a charitable contribution is a very unusual occurrence. In fact, the very nature of a contribution involves the relinquishing of ownership and control over the gift.

Nonprofit organizations are not at liberty to simply refund contributions upon a donor’s request. (Imagine a donor giving a large gift, the organization using the gift to pay for a significant initiative, and the donor subsequently asking for a refund. If such practices were allowed, nonprofit organizations couldn’t properly function.)

It is true that if a donor accidentally gave more than he/she intended, a nonprofit organization may have a moral duty (if not a legal one) to rectify the situation—but only if it was genuinely an accident and only if the organization ensures that it is not the victim of a scam in the process.

A simple way to avoid being scammed in the manner described in this article is to appoint a special team to handle any donation refund requests and train the team on these types of scams. The organization should never issue a refund for an allegedly erroneous contribution until the organization ensures that the funds originally given have fully cleared the banking system and are settled. Simple awareness and adhering to such a policy can prevent an organization from being flimflammed.

Michael (Mike) E. Batts is a CPA and the managing partner of Batts Morrison Wales & Lee, P.A. (BMWL), an accounting firm dedicated exclusively to serving nonprofit organizations across the United States. Danny A. Johnson is CPA partner on the audit and assurance team at BMWL.

Q&A: Is Our Church’s Overall Budget for Salaries Too High?

Excessive compensation is based on individual pay, not on the total amount budgeted for staff.

David Fletcher, Founder of XPastor.org
Bio

I had someone tell me that the personnel percentage of our overall budget is too high and could be considered unreasonable compensation. Is excessive or unreasonable compensation something to monitor on a per-employee basis or an overall budget basis?
When a church has more than 65 percent or 75 percent of its budget going to salaries and benefits, it may be in a poor financial posture for unexpected expenses. It may be difficult or impossible for that church to get a bank loan. The bank will ask, “How are you going to pay it back? Where is the money going to come from?” Three-fourths of a budget going for compensation could be considered poor stewardship and a disproportionate allocation of resources, but it is not what is meant by “unreasonable compensation.”
Excessive or unreasonable compensation is what is paid to an individual. GuideStar, an information service for nonprofits, has an article titled “What You Need to Know About Nonprofit Executive Compensation.” It offers these pertinent insights:

The IRS permits tax-exempt organizations to pay executives “fair and reasonable” compensation. However, there is no universal standard defining fair and reasonable. What’s fair and reasonable at one nonprofit may be a gross under- or overpayment at another.

In another article titled “The Private Inurement Prohibition, Excess Compensation, Intermediate Sanctions, and the IRS’s Rebuttable Presumption,” GuideStar offers general information about IRS regulations for 501(c)(3) public charities. These public nonprofits file IRS Form 990, which churches are not required to file. This means that salaries for nonprofit executives are in the public record with Form 990, while church salaries are not. That fact aside, church boards would be wise to pay attention to what GuideStar has to say in this article. Of particular interest would be these factors that nonprofits should use to evaluate the reasonableness of compensation (developed by nonprofit law expert Bruce R. Hopkins):
  1. Compensation paid by similar organizations, both exempt and taxable, for equivalent positions in the same community or geographic area
  2. The need for the particular services of the person in question
  3. The uniqueness of the person’s background, education, training, experience, and responsibilities
  4. Whether the compensation was approved by an independent board of directors
  5. The size and complexity of the income and assets and the number of employees
  6. The person’s prior compensation arrangements
  7. The person’s job performance
  8. The relationship of the person’s compensation to the compensation paid to the other employees.
  9. The number of hours the person spends performing his or her job
Churches would be wise to consider using these factors—modified, of course, to reflect their own policies, style of governance, and state guidelines.
Along with the expert insights from GuideStar, Church Law & Tax has great materials on what constitutes unreasonable or excessive compensation for churches. Here are a few:
For help with planning the budget for staff and other areas of ministry, see these Church Law & Tax resources (to name just a few):
David Fletcher has more than 35 years of experience as a pastoral leader in churches. In 2003, he founded XPastor, a resource website for executive pastors, and XP-Seminar, an annual church leadership conference.

How to Take a Vote in 5 Easy Steps

What you need to know to keep a meeting moving along.

Sarah E. Merkle, Attorney
Bio

Chairing a meeting is harder than it looks. And at times parliamentary procedure doesn’t make that job any easier. Keeping track of what motion is on the floor and who to recognize next is tough. Taking a vote the proper way might seem like a luxury.

Well, as a professional, I’m here to tell you it’s not. Following a pattern and using consistent language to take a vote can do wonders to move your meeting along. Here’s a tried-and-true method.

Voting Step 1: Tell members that it’s time to vote.

Once discussion is over, give the members a heads-up that it’s voting time.

Say this: “There is no further discussion. We will now take a vote.”

Voting Step 2: Tell members what motion they’re voting on.

This is a necessary but often-skipped step. I know you think that members are so entranced by the floor debate and your flawless leadership skills that they know precisely what motion is on the floor for a vote. Let me tell you—they may be looking at you, but they’re thinking about their fantasy football team, not the meeting. So, help everyone out and remind members what they’re voting on before you ask them to vote.

Say this: “The motion on the floor is that we hold a bake sale on January 31 to raise funds for the local homeless shelter.” OR “We are voting on the following motion: that we hold a bake sale on January 31 to raise funds for the local homeless shelter.”

Voting Step 3: Ask members who is in favor of the motion and who is opposed.

You’ve told everyone it’s time to vote and what they’re voting on. Now, ask them to vote.

Say this: “All those in favor, say ‘aye.’ All those opposed, say, ‘no.’” OR “All those in favor, please rise. Be seated. All those opposed, please rise. Be seated.”

(P.S. Read my earlier post to make sure you don’t screw up this step.)

Voting Step 4: Announce the results of the vote.

Tell members who won.

Say this: “The ‘ayes’ have it, and the motion is adopted.” OR “The ‘nos’ have it, and the motion is not adopted.”

Voting Step 5: Announce the effect of the vote.

This step just clarifies what will happen as a result of the vote. All you have to do is tell people whether you will or won’t be doing what the motion said.

Say this: “We will hold a bake sale on January 31 to raise funds for the local homeless shelter.”

Maybe you read these steps and think, overkill—as in, this will take forever and complicate life.

Well, before you write it off, can you just give it a try? Obviously, it’s more words than just saying, “Ok, let’s vote. Who’s in favor? Awesome. Let’s have a bake sale.” But I promise, the extra words are worth it because they keep everyone on the same page, saving you the trouble of getting everyone caught up, especially the guy who was thinking about his fantasy football team. And the consistency of the wording sets your members at ease because they know what to expect. Process helps everyone.

This post first appeared on The Law of Order. Used with permission.

Related resource: Church Governance: What Leaders Must Know to Conduct Legally Sound Church Business
Sarah E. Merkle is a professional parliamentarian and presiding officer. One of five lawyers worldwide to have earned the credentials Certified Professional Parliamentarian-Teacher (CPP-T) and Professional Registered Parliamentarian (PRP), she helps boards, associations, corporations, and public bodies navigate rules applicable to governance and business meetings.

Could You Raffle Away Your Tax-Exempt Status?

Insights on a common misconception that gaming is a “charitable” activity

Last Reviewed: October 30, 2024

Congregations that raise funds through raffles, bingo nights, or other games of chance would be wise to familiarize themselves with IRS Publication 3079, “Tax-Exempt Organizations and Gaming.” Here is an excerpt that specifically addresses 501(c)(3) organizations—including churches:

An organization may qualify for exemption under IRC Section 501(c)(3) if it is organized and operated exclusively for religious, charitable, scientific, literary or educational purposes or for the purposes of testing for public safety, fostering national or international amateur sports competition or preventing cruelty to children or animals. To be exempt under Section 501(c)(3), an organization must engage in activities that accomplish one or more of these purposes. Examples of Section 501(c)(3) organizations include schools, churches and non-profit hospitals.

A common misconception is that gaming is a “charitable” activity. There is nothing inherently charitable about gaming. It is a recreational activity and a business. Although a charity may use the proceeds from gaming to pay expenses associated with its charitable programs, gaming itself does not further any charitable purpose. Thus, gaming cannot be a more than an insubstantial purpose of a 501(c)(3) organization. . . .

An organization puts its exempt status in jeopardy when gaming results in inurement or prohibited private benefit to individuals, or where funds from the activity are diverted for private purposes.

A charity conducting gaming as an insubstantial part of its activities will not ordinarily jeopardize its tax-exempt status but may be subject to the tax on unrelated business income. . . .

The IRS determines whether an organization is conducting a “substantial” unrelated activity by examining all the facts and circumstances. There is no “bright-line” or numerical test prescribed by the [Internal Revenue Code]. The IRS will consider the dollars raised by and spent on an unrelated activity as well as the time and other resources devoted to it in making the determination of substantiality.

Image: LumineImages | Getty

Q&A: What Do We Need to Know About Outsourcing Financial Tasks?

Keep these factors mind: cost, security, and savings.

David Fletcher, Founder of XPastor.org
Bio

Last Reviewed: November 21, 2023

Q: My church is considering outsourcing our financial roles. If we choose to do this, what should we keep in mind as we search for the right outsourcing service?

When a church considers outsourcing its financial roles, there are a few key factors to keep in mind: cost, security, and savings.

As for the security or risk factor, you need to be aware that, in essence, you are handing your church’s bank accounts over to an outside service. But this doesn’t have to be viewed as a negative—especially if you land a reputable firm.

“Internal controls are a key area where churches are at risk,” writes Sam Yeo, a partner at ChurchWest Insurance Services, in an online article about outsourcing bookkeeping. “Having someone outside of the financial system reconciling your bank accounts, tracking and verifying your deposits and checks means there is a second set of eyes going over all of your system, increasing the safeguarding of your congregation’s resources.”

Justin Spicer, president of Empower Consulting, offered the following pointers on what a church should consider when evaluating each financial outsourcing service:

Church experience

 What kind of direct experience does the firm and its staff have in local church financial leadership, including a deep understanding of the “language of church”?

Client profile

Does the firm have a focus on serving churches, or is it a side segment of its client base? Does the service have church clients that are similar in size, budget, and financial operations to your church?

Technology

Does the service use the latest technology (cloud-based software, paperless accounting, mobile apps) and do these technologies integrate with your church’s software?

Level of expertise

Along with considering the time you might save, how much additional high-level expertise can you gain from outsourcing? I would argue that you not only want to find a bookkeeper but also a strategic partner in your ministry.

References

What do church clients say about the firm? Contact several current client references to hear about their experiences working with the firm. Again, get references from churches that are similar to your own in size, budget, and financial operations.

Cost

Does the upfront and monthly expense make sense from a cost-savings perspective (saving staff wages or reallocating current staff) and your current budget? Since the price will increase as you grow, are you willing to absorb that into your operating budget?

Regarding Justin’s thoughts on costs, I would add this advice: Look at the salary and benefits for hiring in-house staff to oversee financial operations. This easily runs from $50,000 to $150,000. That’s just the initial cost of a hire. You would also need to add in expenses such as equipment and overhead.

If you decide to pursue a service, get three bids from outsource firms. Vet the firm to ensure that each one has the highest caliber of leaders and proven integrity. Compare the costs. Then compare the “ease of use.” Will you be able to get a check cut quickly? Can you easily get reports?

Finally, you will still need a team to count and deposit the offering, unless you pay a bank to do this.
David Fletcher has more than 35 years of experience as a pastoral leader in churches. In 2003, he founded XPastor, a resource website for executive pastors, and XP-Seminar, an annual church leadership conference.

Seventh Circuit: Clergy Housing Allowance Is Constitutional

Appellate court reverses lower court ruling, preserving valuable tax benefit.

Matthew Branaugh

Editor’s Note: In June of 2019, Freedom From Religion Foundation announced it would not petition the US Supreme Court to challenge the Seventh Circuit’s decision.

After an appellate court ruled the clergy housing allowance to be constitutionally permissible in March (Gaylor v. Mnuchin), churches across the nation breathed a collective sigh of relief. For good reason. The allowance is the most valuable tax benefit to ministers who qualify for it. It’s estimated to be worth nearly $700 million a year, according to the congressional Joint Committee on Taxation.

Still, churches should be aware that the clergy housing allowance could be headed for more challenges, either from the Freedom From Religion Foundation (FFRF)—the atheist organization that brought the most recent lawsuit—or other like-minded organizations.

In a statement after the March decision by the US Court of Appeals for the Seventh Circuit in Chicago, the FFRF urged Congress to take the opportunity and intervene by repealing Section 107(2), the Tax Code provision that makes the clergy housing allowance possible. In a tweet, the Associated Press said FFRF is “reviewing options.”

Whether the FFRF will petition the US Supreme Court to review the Seventh Circuit’s decision remained uncertain at the time this publication went to press. The Supreme Court each year receives about 8,000 petitions, but accepts only 80. CPA Ted Batson said the prospects of a Supreme Court review should be known by sometime in June.

Further, other challenges could emerge in the future. The aforementioned efforts could be made to lobby Congress to repeal this benefit, but the likelihood of this happening is even smaller, said attorney, CPA, and Church Law & Tax senior editor Richard Hammar. A repeal would require gaining enough votes in Congress, an extremely difficult task, he noted.

Alternatively, other lawsuits could be brought. But this is unlikely for technical reasons, including the legal doctrines of res judicata, law of the case, and personal jurisdiction, Hammar said.

The bottom line for now: Church treasurers and finance committees do not have to worry about making budgetary adjustments in the coming months to accommodate for the loss of this tax benefit.

Moving toward the Seventh Circuit decision

In 2017, co-leaders of the FFRF brought their lawsuit before Judge Barbara Crabb of the District Court for the Western District of Wisconsin after their efforts to claim housing allowances were denied by the Internal Revenue Service. In light of that rejection, they argued the housing allowance exclusively benefits ministers, violating the Establishment Clause of the First Amendment. Judge Grabb agreed with the FFRF, and that’s how the case ended up in the Seventh Circuit.

The 2017 decision jeopardized the benefit for clergy in Illinois, Indiana, and Wisconsin—the three states covered by the Seventh Circuit—and many predicted similar consequences nationwide, were the Seventh Circuit to affirm the decision on appeal. Such an outcome would have delivered a financial blow to houses of worship and their leaders who qualify for the benefit.

Reversing Judge Crabb’s ruling

The opinion of the Seventh Circuit, authored by Circuit Judge Michael Brennan on behalf of a three-judge panel, reversed Judge Crabb’s ruling, concluding the 65-year-old benefit does not offend the First Amendment.

It is the first time a federal court of this stature has evaluated the constitutional merits of the clergy housing allowance.

“FFRF claims Section 107(2) renders unto God that which is Caesar’s,” Brennan wrote. “But this tax provision falls into the play between the joints of the Free Exercise Clause and the Establishment Clause: neither commanded by the former, nor proscribed by the latter.”

Applause . . . and cautious optimism

Church leaders, attorneys, and CPAs who serve churches nationwide applauded the decision.

“As the Seventh Circuit rightly decided, clergy members enjoy the housing (and parsonage) allowance not because they are somehow unfairly favored, but because such approach reflects sound tax policy consistent with limited government interference with religion, a level playing field for housing-related tax benefits, and appropriate deference to the role of religious institutions within our country,” said Sally Wagenmaker, an attorney with Wagenmaker & Oberly in Chicago and president and chairperson of the Christian Legal Society.

“The ruling is a significant victory for religious freedom,” added Noel Sterett, an attorney with Dalton & Tomich in Chicago who has argued other cases before the Seventh Circuit. “Secular workers of all different kinds, be they teachers, nurses, or prison wardens, receive tax-exempt housing when it is for the convenience of their employers. Affording religious leaders and their ministries a similar tax benefit is not preferential treatment but equal treatment.”

Others cautioned leaders to take a wait-and-see approach, despite an outcome favoring churches.

“This news comes as a relief to churches and clergy across America,” said CPA Michael Batts, an editorial advisor for Church Law & Tax. “Of course, given the possibility of further consideration and appeals, we’re not quite to the point in the story where we can say ‘and they all lived happily ever after.’”

A “comprehensive approach”

Section 107(2) allows qualifying ministers who rent or own their own homes to receive an annual housing allowance from their employing church—and not pay federal income taxes on the designated amounts. The provision was adopted by Congress in 1954, after clergy from a variety of faith traditions indicated there was unequal tax treatment for those who were not provided a parsonage from their employing house of worship. Since 1921, clergy who live in parsonages receive federal income tax exemptions for housing-related expenses through Section 107(1) of the Tax Code.

Separately, parts of the Tax Code provide similar tax exemptions for other types of employer-employee housing arrangements.

During oral arguments regarding the appeal last October, the Seventh Circuit justices focused on which legal test should be used to evaluate Section 107(2) in light of the First Amendment. One approach involves the Supreme Court’s “historical significance test.” Another involves the Supreme Court’s three-prong test from Lemon v. Kurtzman.

Brennan and the other judges opted to take a comprehensive approach. “Because the Supreme Court has not clarified which should take precedence, we evaluate FFRF’s claims under both tests and associated case law,” Brennan wrote.

The Seventh Circuit found the housing allowance satisfied all three prongs from Lemon. Under the first prong, Section 107(2) maintains a secular legislative purpose, Brennan said. “Parallel provisions” exempt employer-provided housing for employees in other job sectors, he noted. Also, Congress passed Section 107(2) to ensure equal treatment among all ministers, since only those who served at churches providing parsonages could receive the tax break under Section 107(1). And, Brennan said, Section 107(2) provided a method of administering housing allowances for ministers that avoided concerns of “excessive entanglement” by the government that would arise, were other Tax Code provisions pertaining to housing arrangements involving secular entities applied to churches.

Under the second prong of Lemon, determining whether the statute advances or inhibits religion, Brennan cited the Supreme Court’s decision in Walz v. Tax Comm. of City of N.Y., concluding the tax exemption made possible by the housing allowance statute was not synonymous with a government subsidy. And Section 107(2) met Lemon’s third prong since, as noted under the first prong, excessive entanglement concerns would arise were the government to administer tax-exempt housing for ministers using the same methods as applied to secular employers and employees.

Turning to the historical significance test, Brennan said “[t]he government and intervenors, and amici curiae supporting their position, have provided substantial evidence of a lengthy tradition of tax exemptions for religion, particularly for church-owned properties.” In contrast, Brennan noted, “FFRF offers no evidence that provisions like [Section] 107(2) were historically viewed as an establishment of religion.”

What the decision means for churches and clergy

The Seventh Circuit’s decision keeps the housing allowance intact for churches and clergy in Illinois, Indiana, and Wisconsin. Churches and clergy nationwide also continue to enjoy the benefit. Treasurers should make sure they have designated allowances for 2019 or make any needed mid-year adjustments to currently designated allowances (see Key Tax Date in the May issue of Church Finance Today). Congregations also should continue to designate allowances annually until further notice.

Key point. The IRS audit guidelines for ministers state that the term parsonage allowance includes “church provided parsonages, rental allowances with which the minister may rent a home and housing allowances with which the minister may purchase a home.”

Key point. Parsonage and housing allowances should be (1) adopted by the church board or congregation, (2) recorded in written form (such as minutes), and (3) designated in advance of the calendar year. However, churches that fail to designate an allowance in advance of a calendar year should do so as soon as possible in the new year. The allowance will operate prospectively.

TIP For detailed information and tax guidance for both parsonage and housing allowances, see chapter 6 in the Church & Clergy Tax Guide.

However, leaders also must watch to see how this storyline continues to unfold. FFRF may attempt to petition the Supreme Court, and were the Court to agree to review the case, its decision—potentially affirming or reversing the Seventh Circuit’s decision—would become precedent nationwide.

With the possibility of other future challenges still very real, churches and clergy also should still evaluate and adopt contingency plans were the housing allowance benefit ever to go away (see “Tip” below). Those plans can help navigate the financial strain that would arise under such a scenario.

For now, though, such a scenario remains just that—a scenario.

TIP For recommendations and possible solutions should the housing allowance ever be eliminated, see “Facing a Future Without the Clergy Housing Allowance” in the February 2018 issue of Church Finance Today.

“The housing allowance is constitutional. Churches may continue designating a housing allowance as they have been doing historically,” said attorney and CPA Frank Sommerville, a Church Law & Tax editorial advisor. “While this decision is not final, the pressure is off of church budgets.”

ChurchLawAndTax.com will continue covering this matter as new developments occur.

Matthew Branaugh is editor of content and business development for Church Law & Tax.

This article has been revised and updated from the original article that was posted March 15, 2019.
Image: mediaphotos | Getty

Q&A: What Are the Consequences for Pastors Who Don’t File Tax Returns?

Some ministers incorrectly believe they are exempt from taxation.

Richard R. Hammar
A minister on staff at our church has never filed a federal tax return. What are the consequences?

There are ministers who have never filed a federal income return, and it is easy to understand why. Some ministers believe they are exempt from taxation. Others are not familiar with the exemption of clergy wages from income tax withholding and the need to either elect voluntary withholding (by filing a completed IRS Form W-4 (Employee’s Withholding Allowance Certificate) with the church or prepay taxes using the estimated tax procedure (Form 1040-ES).

Either way, a substantial tax debt can be incurred. Here is a summary of the consequences:

  1. If you don’t file your return by the due date (including extensions), you may have to pay a failure-to-file penalty. The penalty is usually 5 percent for each month or part of a month that a return is late, but not more than 25 percent. The penalty is based on the tax not paid by the due date (without regard to extensions).
  2. If your failure to file is due to fraud, the penalty is 15 percent for each month or part of a month that your return is late, up to a maximum of 75 percent.
  3. If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $210 or 100 percent of the unpaid tax.
  4. You won’t have to pay the penalty if you show that you failed to file on time because of reasonable cause and not because of willful neglect.
  5. You will have to pay a failure-to-pay penalty of 1/2 of 1 percent (0.50 percent) of your unpaid taxes for each month, or part of a month, after the due date that the tax isn’t paid. This penalty doesn’t apply during the automatic 6-month extension of time to file period if you paid at least 90 percent of your actual tax liability on or before the due date of your return and pay the balance when you file the return. If a notice of intent to levy is issued, the rate will increase to 1 percent at the start of the first month beginning at least 10 days after the day that the notice is issued. This penalty can’t be more than 25 percent of your unpaid tax. You won’t have to pay the penalty if you can show that you had a good reason for not paying your tax on time.
  6. If both the failure-to-file penalty and the failure-to-pay penalty apply in any month, the 5 percent (or 15 percent) failure-to-file penalty is reduced by the failure-to-pay penalty. However, if you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $210 or 100 percent of the unpaid tax.
  7. These are some of the civil penalties the IRS can assess if a taxpayer fails to file a tax return and pay taxes. Other penalties may apply, as well as interest.

    8. The calculation of penalties can be a difficult task. The services of a CPA can be invaluable in such cases. And, be sure all clergy staff members understand the quarterly estimated tax procedure.

    In addition to the civil penalties listed above, a taxpayer can be subject to criminal penalties for a willful attempt to evade taxes. Criminal liability requires an affirmative act (typically filing a false return). Omissions are generally insufficient. Tax evasion is a felony punishable by a fine of not more than $100,000 or a prison sentence of up to five years or both. But civil penalties are much more likely, as few ministers are convicted and imprisoned for tax crimes.

    New ministers will find many of their tax questions answered in 12 Law & Tax Guidelines for New Ministers. And both churches and seasoned ministers will find detailed guidance on a variety of complex tax issues in the Church & Clergy Tax Guide.
Image: harpazo_hope | Getty

Association Calls for Prevention Commitment by Churches

Resolution calls pastors and church leaders to adhere to high ethical standards and establish practices to prevent misconduct and address accusations appropriately.

Matthew Branaugh, Business Owner
Bio

“The Board of Directors of the National Association of Evangelicals (NAE) approved a resolution at its semiannual meeting on March 7, 2019 lamenting the tragic violation of trust by ministers of the gospel who have sexually abused church members, and particularly children.

The resolution also calls pastors and church leaders to adhere to high ethical standards and establish practices to prevent misconduct and address accusations appropriately. … The NAE encourages pastors to sign the Code of Ethics for Pastors, church leadership teams to sign the Code of Ethics for Congregations and Their Leadership Teams, and all church leaders to:
  • Thoroughly vet all staff hires including rigorous background and reference checks;
  • Screen and provide child protection training to all volunteers who have access to children;
  • Establish confidential third party mechanisms for receiving reports of abuse;
  • Ensure that all members of the church community know how to report concerns;
  • Investigate reports promptly and thoroughly, without defensiveness;
  • Take decisive disciplinary action where violations have been corroborated; and
  • Offer pastoral care and support to those who have been affected by abuse of any kind.”

The Church Law & Tax take: The sexual abuse of a minor remains a perennial top reason churches go to court each year. Attorney Richard Hammar, recognizing the threat in the early 1990s, crafted Reducing the Risk, a turn-key screening, selection, and supervision program for churches to prevent abuse. This resource, which was recently updated, covers many of the recommendations made in the NAE resolution.
Matthew Branaugh is an attorney, and the business owner for Church Law & Tax.

The New Overtime Rule Proposal: What Churches Should Note

Editor’s note: On September 24, 2019, the US Department of Labor announced the final version


Editor’s note: On September 24, 2019, the US Department of Labor announced the final version of its rule. Of note for churches and church leaders: the adopted “standard salary level” is $684 per week, or $35,568 per year, for a full-year worker. This is slightly higher than the original rule proposed in March.


Editor’s note: For an in-depth treatment of this topic, see Richard Hammar’s analysis in “A Closer Look at New Overtime Rules Taking Effect in 2020.”

On March 7, the US Department of Labor (DOL) “issued its long-awaited replacement of the Obama administration’s controversial overtime rule, raising the minimum salary threshold required for workers to qualify for the Fair Labor Standards Act’s ‘white collar’ exemptions to $35,308 per year,” reported Law360.com. The new weekly minimum salary will work out to be $679. Employees who are categorized with white-collar exemptions, and normally would not receive overtime pay, will become eligible for overtime pay if they earn less than the new threshold amount.

The rule, part of the federal Fair Labor Standards Act, is scheduled to take effect on Jan. 1, 2020. It will not include any exemption for religious employers. Church leaders will need to take note about the proposal and anticipate possible budgetary and payroll changes they will need to make for qualifying staff members.

On page 10 of the original 219-page proposal, the DOL also said it intends to propose updating the salary threshold levels every four years through a notice-and-comment rulemaking process (Editor’s Note: As of Aug. 14, 2019, the link to the proposal is no longer available. The agency now publicly says it will only commit to periodic reviews for potential updates to the threshold.)

The last threshold update occurred in 2004.

The plan proposed by the Trump administration is far less aggressive than the $47,467 annual threshold (or $913 per week) proposed by the DOL under Obama. In 2017, a federal district judge in Texas struck down the increase wanted by the Obama White House.

“Our economy has more job openings than job seekers and more Americans are joining the labor force,” Labor Secretary Alexander Acosta said in a news release. “… [Thursday’s] proposal would bring common sense, consistency, and higher wages to working Americans.”

One important note, per The Kiplinger Letter: “Many states have already set higher thresholds, which supersede the federal standard.” Churches should research their state laws to make certain they do not need to comply with a higher threshold in their respective state.
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