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Should Noncash Contributions Be Included in Donor Statements?

Discover the proper way to handle noncash contributions in donor statements with these IRS-compliant best practices.

Elaine L. Sommerville, CPA
Bio

Last Reviewed: January 24, 2025

Q: Before the beginning of each school year, our church holds a back-to-school backpack drive where members purchase new backpacks for children in need. If a member spends $100 on backpacks for the drive, should the church include this noncash donation on the donor statement?

Noncash contributions should not be included in regular donor statements. Instead, qualifying receipts for noncash donations should be issued separately. This ensures compliance with IRS guidelines and provides donors with the appropriate documentation for their records.

Guidelines for Issuing Noncash Donation Receipts

1. Separate Noncash Receipts from Cash Statements

Noncash donations require their own receipt, separate from regular cash donation statements. Mixing noncash contributions with cash receipts can lead to incomplete or inaccurate records.

2. Include a Complete Description

Receipts for noncash donations must provide a full description of the donated items. Courts have ruled that insufficient descriptions can disqualify a donation from being claimed as a deduction. For example, describe the items as “10 new backpacks” instead of “school supplies.”

3. Exclude Monetary Values

Noncash donation receipts should not include a dollar value, even if the donor submits a receipt showing the purchase price. Determining the value of noncash donations is the donor’s responsibility.

4. Include the “No Goods or Services” Statement

Like cash donation receipts, noncash donation receipts should include a statement confirming that no goods or services were provided in exchange for the donation. This is a required element for tax-deductible contributions.

Best Practices for Churches

To streamline the process and ensure compliance:
  • Use separate systems or templates for noncash donation receipts to accommodate the detailed descriptions required.
  • Train staff and volunteers on the specific requirements for issuing noncash donation receipts.
  • Encourage donors to retain their purchase receipts and provide a copy for church records if needed.

For more details on charitable contributions, visit the IRS Charitable Contributions page or explore the guidelines provided by the Evangelical Council for Financial Accountability.

FAQ: Charitable Contribution Statements
  • Can noncash donations be included in regular donor statements?
    No, noncash donations should be issued separate receipts with detailed descriptions.
  • What should a noncash donation receipt include?
    A complete description of the donated item(s) and a statement confirming no goods or services were received in return.
  • Should the receipt show the monetary value of the noncash donation?
    No, it is the donor’s responsibility to determine the value of noncash contributions.
  • Why are detailed descriptions important?
    Courts have disallowed deductions for donations with insufficient descriptions, making this a critical compliance requirement.
Elaine L. Sommerville is licensed as a certified public accountant by the State of Texas. She has worked in public accounting since 1985.

Understanding Key Church Expense Ratios for Financial Health

Discover four key expense ratios every church should monitor to enhance financial health and ensure better stewardship of resources.

Vonna Laue, CPA
Bio

Last Reviewed: January 25, 2025

Does your church track its expense ratios? This can help you identify key trends in the outflow of resources between years. It also provides the opportunity to compare with other churches and check the reasonableness of your expenses. These ratios represent important indicators every church should understand.

1. Personnel and Mandatory Debt Service Payments to Total Expenses (Excluding Depreciation Expenses)

The ratio of “ Personnel ( Salaries + Benefits ) + Mandatory Debt Service Payments (Principal + Interest Expense)” to “Total Expenses – Depreciation Expense”

The largest expense on the financial statements of most churches is salaries and benefits. This is understandable, as a church is not in the business of selling products or manufacturing items. It provides services performed by individuals, paid and volunteer. Debt service payments—which are a reduction of a liability and not an expense—represent the second largest outlay. Together, these items represent a majority of resource outflows from the local church.

Therefore, it is essential to continually monitor these levels as a percentage of cash expenses. Cash expenses are total expenses less (minus) depreciation, the most significant noncash expense recorded. It is also important to promptly follow up on changes in trends or unusual variances from peers to ensure that your ministry resources are continually maximized.

This ratio, which can be split into two separate pieces, allows your church to look at two of its largest outflows and determine the portion of the operating budget that will be used. Often a growth cycle results in an amount of debt the church anticipates being able to pay off as more people are able and encouraged to attend. However, the church needs to be able to pay the bills and provide the services that will attract new people with the current budget. Reviewing this ratio in advance of any major debt decisions will help you analyze the feasibility of your facility expansion goals.

Reasonable benchmarks for these ratios, both individually as separate pieces and in the aggregate, are reflected in how churches actually spend their money. Those benchmarks are:
  • Personnel costs (salaries and benefits) should fall between 40 percent and 55 percent of expenses.
  • Mandatory debt service payments, including interest, should be no more than 15 percent of total expenses.
  • Total personnel and debt service costs should be no more than 40 percent to 70 percent of total church expenditures.

2. Expenses (Excluding Depreciation) per Average Adult Attendee and Giving Unit

The ratio of “Total Expenses (Excluding Depreciation Expense)” to “Average Adult Attendees and Giving Units”

Has your church ever wondered what the cash cost is to the church for each adult attendee or giving unit? This measure provides the answer. It takes total cash expenses and divides that total by the average adult attendees or giving units.

This measurement uses the concept of a giving unit: a group of family members, or any recurring supporters of the ministry, that contribute jointly to the church. This excludes individuals who make a smaller, one-time gift supporting a specific event, such as a short-term mission trip. To identify only the regular recurring giving units, you must set a minimum dollar threshold, such as giving units that contribute more than $250 annually.

The power of this measure is in the peer group comparison. This allows your church to see if your cash expenses are high or low compared to your peers. Analyzing trends between years is also important.

Another benefit of this measure is that it can be subtracted from total contributions per attendee and giving unit to show if contributions are high enough to cover the monetary cost per individual. In other words, are you taking in enough contributions to cover the costs of having people attend your church?

3. Total Missions Categories to Total Expenses

The ratio of “Total (Local and Global) Outreach Expenses” to “Total Expenses”

This ratio looks at the combined total of local and global outreach (outside missions and benevolence) expenses as a percentage of total expenditures. Congregations report expenses for local and global outreach differently. Some churches tithe for their missions budget based on the offerings received.

This ratio can be separated into two pieces and calculated by local and global activities. Global activities include actual outside expenditures for cross-cultural missions activities in the United States and other countries. This includes direct support to missionaries; outside agencies, including national partners; and cross-cultural mission trips. It specifically excludes internally allocated costs and salaries of church employees included within missions for some church budgets. This is because internal allocations vary significantly between churches.

Local outreach includes actual outside expenditures for local missions activities not classified as “global.” This includes direct support of community-based church ministries, local missionaries and agencies, and benevolence given to local individuals. It also excludes internally allocated costs and salaries of church employees included within missions for the same reason as stated above.

Churches may find this ratio useful in benchmarking their total outreach expenditures with other churches. But more importantly, when a church experiences economic difficulties, the ministry and mission expenses are usually the first to be decreased as debt service payments are not discretionary and personnel costs are difficult to reduce. Declines in this ratio can allude to other issues within the church. Monitoring these ratios over time will allow the church to identify any significant changes.

4. Facility Cost per Square Foot (Excluding Interest Expense)

The ratio of “Total Facility Costs (Excluding Interest Expense on the Debt and Depreciation)” to “Total Facility Square Footage”

This measure answers the question “How much does it cost to operate my church building?” Total facility costs include building and grounds maintenance, personnel salaries and benefits, outside contract labor, utilities (excluding telephone), security, liability insurance, and rent or mortgage payments. It should also include the cost of general repairs to the facility and other facilities-use expenses, but not equipment purchases or the cost of major renovations. This overall expense excludes both vehicle-related expenses and interest expense on debt and depreciation.

Keep in mind that facilities expense measures can vary, depending on whether the church has new or older facilities and is in one or multiple locations. Facilities expense measures can also vary by geographic area. The most accurate comparison would be against churches with buildings of a similar age as yours (e.g., built within a decade of your own).

Monitoring Your Church’s Financial Health

Measuring and monitoring expense ratios and other key financial data will help your leadership team assess your church’s financial health, identify areas for improvement, and be good stewards of your resources. The four ratios and measurements outlined above provide a good starting point for monitoring trends in expenses, and additional metrics have been discussed in other columns.

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

Sound financial decisions include regular reviews of coverage options by a team.

Richard R. Hammar, Attorney, CPA
Bio

For most churches, the choice of insurance involves little consideration and is based almost entirely on price, or in some cases on familiarity with an insurance agent who attends the church. Churches can and should do better. The choice of insurance should be the result of an intentional and rational process, and this can be facilitated through the use of an insurance committee.

The Bible says that “there is safety in having many advisers” (NIV). A church is almost always better served when a committee of three or more members explores and recommends insurance coverage options. This is especially true when members of the committee reflect business and financial expertise. The committee makes its recommendations to the governing group, such as the board or congregation, which then makes the final decisions.

Here are five important tasks any insurance committee should perform.

1. Choose an insurance company

One of the main tasks of an insurance committee is to select an insurer. The committee should obtain quotes from two or three insurers. A final decision should be made on the basis of several factors, including but not limited to cost. It is often helpful to deal with an insurer that specializes in the church market.

If an insurance agent or broker is a member of your congregation, feel free to consider this person for the committee. But, be aware of a potential conflict of interest if the person is a member of the church board. Even if not a board member, be wary of doing business with this person’s company since this may not be the best option when viewed objectively.

2. Identify risks to insure

Another valuable function of an insurance committee is to identify risks to insure. If one or more committee members are on the church board, they will be familiar with the full extent of the church’s programs and activities and be able to provide invaluable input for selecting coverages. When evaluating risk coverage, here are some valuable tasks an insurance committee can perform.

Property risks
  • Check to see if unique items—such as stained glass windows, pipe organs, handbells, artwork, and sound equipment—require special “endorsements.”
  • Obtain appraisals of unique items to be sure they are adequately insured.
  • Conduct periodic inventories of property to prove claims in the event of loss or destruction.
  • Check to see if coverage is limited to the market value of damaged or destroyed property. If so, consider obtaining replacement cost coverage.
  • Check to see if boiler heating systems require a special endorsement.
  • Check the exclusions under the policy. Some risks—such as earthquakes, mold, and sewer or drain backup—may be excluded and require special endorsements.
  • Check to see if your policy contains a “coinsurance clause.” If so, you are required to insure your property for a specified percentage of its market value. If you don’t, you become a “coinsurer,” meaning that your policy will pay less than the stated limits in the event of a partial loss. The committee members should review the policy every year to carefully evaluate coinsurance clauses.

Liability risks
  • Check to see if sexual misconduct coverage is limited, and if higher amounts can be obtained by complying with specific prevention procedures.
  • Every policy excludes intentional or criminal misconduct. Some insurers take the position that this exclusion precludes any coverage for a church that is sued on the basis of negligence for the molestation of minors by an employee or volunteer. The church’s argument in such cases is that the intentional and criminal conduct exclusion does not apply since the church has not engaged in such conduct. However, it is being sued for its alleged negligence in selecting or supervising the perpetrator.

    One of the most important tasks of an insurance committee is to ascertain, in writing, the insurance company’s position on this essential question.

  • Some policies provide only minimal medical benefits to persons injured on church property. Make sure this risk is adequately covered.
  • Check to see if your property or general liability policy contains coverage for church-owned vehicles. If not, obtain a separate endorsement for this coverage.
  • Determine if the church needs employment practices coverage. Liability policies typically exclude coverage for claims made by current or former employees against the church, including wrongful termination. Employment claims can present a substantial uninsured risk to churches.

3. Help determine coverage amounts

In general, the amount of coverage should be based on two primary considerations: (1) the nature and frequency of your activities, and (2) the net value of the church’s assets. Once again, if one or more committee members are on the church board, they will be familiar with the full extent of the church’s activities and assets and will be in the best position to make informed decisions regarding coverage amounts.

To illustrate the first consideration, if your church has a youth program that has frequent meetings involving minors, or provides counseling or hosts community activities, then your liability risks increase and you should look for higher insurance limits.

Regarding the second consideration, and as a general rule, liability insurance should have limits in excess of the net value of the church’s assets, so that the assets are protected in the event of litigation.

An insurance committee also should periodically review all church insurance coverages to be sure they are adequate and periodically obtain appraisals of church property (real property, personal property, and fixtures) to be sure the church possesses adequate coverage.

4. Assist with compliance of insurance policy conditions

An insurance committee can assist with compliance of the conditions in a church’s insurance policies.

To illustrate, church insurance policies generally require that the church notify the insurance company in writing and within a specified period of time concerning any property damage or personal injury that occurs. Failure to do so can relieve the insurance company of any duty to defend the church in a lawsuit or pay a settlement or jury verdict as a result of the damage or injury.

The duty to notify your insurance company of an injury or loss arises when the injury or loss occurs and not when a lawsuit is filed. The purpose of the notice requirement is to give the insurance company sufficient time to investigate the incident and provide a defense.

Church treasurers should be familiar with the notification requirements in all of the church’s insurance policies. If you change insurance companies, be sure to review the new insurance policy. Do not assume that it will contain the same “notice” provisions as the previous policy.

In addition, liability insurance policies require churches to cooperate with any investigations conducted by the insurance company into losses or injuries. A failure to cooperate may result in the denial of insurance coverage. Churches should never decline an insurance company’s request for information without the advice of an attorney.

5. Review exclusions

An exclusion is a loss that is not covered under an insurance policy. In some cases, excluded losses can be covered by a separate “endorsement” or “rider” by paying an additional premium. An insurance committee should carefully review all exclusions under the church’s insurance policies and obtain special endorsements as necessary.

Choosing committee members

In many churches, the tasks described in this article are handled by one person, typically the lead pastor or church treasurer. But there are so many tasks, and so important, that it is far better to entrust them to a group rather than any one person.

The church board may fill this function in some churches, but an insurance committee often makes more sense if it includes individuals with insurance or financial experience. The committee does the legwork, and makes recommendations to the governing board. This eliminates the need for the board to become bogged down with addressing the many tasks involved in evaluating insurance coverages, and allows for the input of persons with financial and insurance expertise.
Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.
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Effective Church Budgeting Strategies for Achieving Your Mission

Discover effective church budgeting strategies to support your mission, prioritize goals, and maintain financial health.

Vonna Laue, CPA
Bio

Last Reviewed: January 27, 2025

The word “budget” can strike fear in the heart of nearly any staff member. The preparation of the budget is often either a long, arduous process or done with little thought and therefore ineffective. Either way, it is a task that leaders should carefully guide for their churches.

No organization has an infinite supply of resources. At home, a budget is necessary to make sure you have money when various expenses come up. If you don’t personally plan for your car repairs or vacation, you may be surprised or disappointed in the future. Budgeting is even more important in a church, because so many people are involved in the process. If everyone spends money without guidelines, it won’t go well!

The following considerations will help you prepare to budget, resulting in a more successful process and an effective budget that supports your church’s goals.

The budget and the mission must be linked

It is vital for your budget to be tied to the mission of your church. What are you trying to accomplish as a church? Make sure you understand this before you start because it should serve as the filter through which all budgeting decisions are made.

The budget must support the goals

Your church may have a broad vision of reaching your community with the gospel. Now it needs goals that will actually help accomplish that.

For example, you may want to have an active youth group with a 30 percent increase in attendance. Your church may also determine it should have a food pantry reaching out to low-income individuals in your area. Supporting missions also may be a critical goal, with the hope of increasing the number of short-term trips the church offers or the percentage of expenses used in support of local or global efforts.

The goals and the budget must be specific

You won’t know whether you’ve met your goals unless you specifically know what they are. In addition, the budget can’t really be a useful tool unless you are specific about how it is created and monitored.

Let’s say your church chooses to serve meals to the elderly, and at the end of the year you are under budget by $2,000. Was the program successful? You might think so, but if you’d spent the full amount budgeted, you could have possibly shared the love of Christ through a meal with 100 more people.

Establish your priorities and budget accordingly

Everyone on staff should have an idea of the church’s goals for the year ahead. This helps everyone understand how to prioritize spending in their respective areas of responsibility. There are a lot of good things we can do but we need to pick the best things. Strong leadership will be required to work through those opportunities and determine which ones to pursue first.

I strongly suggest you create the primary budget and then two contingency budgets. One would be used if contributions are lower than expected, and the other in case of a surplus. This will allow you to use the prioritization of possible ministries to its fullest, and enable you to automatically know which things to cut or add back. It eliminates much of the emotion that can be tied to the discussion of finances.

I often say that people have their hands out when there is more money than expected, but those hands quickly become fists when people think their program might get cut. If everyone is aware upfront of the funding order for your programs and understands that decisions will be made based on fulfilling the mission, then the spirit of cooperation will be more evident.

Budget considerations must include short- and long-term goals

Decisions that are short-sighted can have a very detrimental effect on the long-term health of the church. Be sure to consider whether the current budget should include items to help facilitate growth or ministry in the future (beyond just the coming year). Also, before you make a significant cut, consider whether it is something that will cost you more in the long run to correct or re-implement.

Choose your approach: top-down or bottom-up

Once you consider the budget as vital to fulfilling your overall mission, you can begin the process of actually creating the working document. Will you choose a more top-down approach, or bottom-up?

Having your church leadership—either a few key leaders or the finance committee—make the budget decisions simplifies the process significantly. However, there is seldom good buy-in from an approach like this. Staff members involved in the ministry’s day-to-day work have a much better idea of where costs can be cut and where costs are vital.

Should you choose to use a bottom-up approach, though, you will need to make sure there are guidelines in place to keep the process moving along. It’s also important for those involved to understand that not all ideas will be implemented. There are constraints they may be unaware of outside their particular realms.

Plan for a year-round process

The budget process is a year-round matter. The first six months of the year should be spent monitoring the budget and the second six months spent planning and approving the new budget. You also should be sure that people are held accountable for the budgets they are responsible for. If there are no consequences, there likely will be no compliance.

Make it a tool, not a weapon

A simple approach of “let’s add 5 percent to last year’s line items and approve the budget” is not the most effective budgeting method. Consider what needs to be accomplished and what finances that will take. With careful planning and buy-in from leaders, the budget can be used as a tool, not a weapon, and help accomplish the vision that has been set for your church.
Vonna Laue has worked with ministries and churches for more than 20 years. Vonna was a partner with a national CPA firm serving not-for-profit entities through audit, review, tax, and advisory services. Most recently, she held the role of executive vice president for a Christian ministry that works to enhance trust in the church and ministry community.
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Waiving Overtime Pay For Church Workers

The FLSA provides a straightforward answer.

Richard R. Hammar, Attorney, CPA
Bio

Q: We have a non-exempt employee who frequently works 50 or more hours per week. She is adamant that she only wants to be paid for 40 hours of work, and is waiving any right to overtime pay. Is this legal?

The overtime requirement may not be waived by agreement between an employer and employee.

An agreement that only 8 hours a day or only 40 hours a week will be counted as working time also fails the test of FLSA compliance. A

An announcement by the employer that no overtime work will be permitted, or that overtime work will not be paid for unless authorized in advance, also will not impair the employee’s right to compensation for compensable overtime hours that are worked.
Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.
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How Should Churches Handle Taxes for Dual-Role Ministerial Employees?

A church employee cannot be both ministerial and nonministerial for tax purposes—here’s how to determine the correct classification.

Frank Sommerville, Attorney, CPA
Bio

Last Reviewed: January 30, 2025

Q: Our church is licensing our youth director as a youth pastor, which will change his status to ministerial for self-employment tax purposes. But he also does the mowing for the church, which is a nonministerial position. Do we pay him separately for the two functions, withholding and matching FICA for the mowing but not for the ministerial work?

For tax purposes, an employee can either be a minister or not; an employee cannot be both.

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The way to tell if an employee should be classified as a minister for tax purposes is if he or she performs ministerial duties at least 51 percent of the time.

If the majority of his or her duties are ministerial, then you must classify the employee as a minister for tax purposes. If the majority of your youth pastor’s work is indeed ministerial, then the payment for mowing the lawn, for tax purposes, should be regarded the same as payment for his ministerial work.
Frank Sommerville is a both a CPA and attorney, and a longtime Editorial Advisor for Church Law & Tax.
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Building a Trusted Church Finance Team: Key Principles for Success

Reduce the risk of fraud by creating a team that incorporates solid internal control.

Chris Lutes
Bio

Last Reviewed: May 17, 2025

As financial secretary at Corn Mennonite Brethren Church in Corn, Oklahoma, Ginnie Warkentin understands how critical teamwork is in managing church finances.

Her conviction comes from experience—and a cautionary tale.

“I personally know of a church where one person took care of the offerings, wrote and signed the checks, and ended up embezzling a substantial amount of money,” Warkentin said.

“To reduce the chance of wrongdoing on the part of any one person, it’s important for any church to have several people handle the offerings.”

Sadly, her story is not unique. A quick search of “church embezzling” yields nearly 5,000 results. A nationwide survey of churches by Church Law & Tax revealed at least 31 percent experienced fraud of some kind over the courses of their histories.

“And those are only the cases that are leaked or made public by the media,” says CPA Vonna Laue.

Why One-Person Finance Operations Are Risky

Laue, a senior editorial advisor for Church Law & Tax, stresses the risk of consolidating financial duties with one individual.

“When you have so many duties consolidated with one person, there is always the risk of fraud,” she explained.

She cited scripture as a helpful guide:

“In the multitude of counselors there is safety. When you have a team that you can rely on, it takes the responsibility and divides it up to the point that the pressure isn’t all on one person.”

A team-based approach—combined with internal control—promotes better decisions and ensures financial reporting is accurate.

Building a Culture of Internal Control

Teamwork alone isn’t enough. Strong internal control systems are essential, says CPA Mike Batts, managing partner at Batts Morrison Wales & Lee and a senior editorial advisor for Church Law & Tax.

Batts outlines three core principles of internal control:

1. Segregation of Duties

Separate those who handle money from those who manage accounting and reporting.

“Handling money includes processing live incoming currency and checks and having signatory authority over bank and investment accounts,” Batts said.

2. Dual Control

Never allow one person to handle funds alone.

“Live funds must be processed by at least two unrelated people working together,” Batts said.

“If funds are stored in a safe or vault, it must be done in a way that doesn’t permit one person solo access.”

3. Oversight and Monitoring

A group separate from the accounting team should regularly review financial reports and flag anything unusual.

“They should compare balances in financial reports with independent documentation—like bank and investment statements,” Batts explained.

For further details, Batts explores these concepts in his book, Church Finance, Second Edition.

Who’s Responsible for What?

Churches vary in structure, but generally:
  • A board of trustees, stewardship committee, or similar group oversees financial governance.
  • The treasurer manages daily operations, including:
    • Counting and recording donations
    • Managing donor records and issuing receipts
    • Reconciling bank and digital giving accounts
    • Filing tax forms
    • Paying bills
    • Reporting regularly to the governing board

Setting Up the Right Team

The number of people needed depends on the size of the church and how duties are split.
  • Donation counters: Ideally, rotate a team of at least eight.
  • Always work in pairs: No counter should handle money alone.
  • Document responsibilities: Write down each role and what it includes.

Choosing the Right People

Finding trustworthy volunteers is essential. Look for individuals with:

1. A Heart for the Church

“First and foremost, they should fully support and endorse the vision of the church,” Batts said.

2. A Commitment to Stewardship

“You are entrusted with the finances of God’s ministry,” Laue said.
“You need to take that seriously. People are getting tax deductions, so donations must be handled properly.”

3. A Respect for Confidentiality

“Confidentiality is so important,” said Dan Busby, former president and chief executive officer of the Evangelical Council for Financial Accountability. “If people show evidence of wanting to tell everybody everything they see, they’re not the kind of people you want handling financial information.”

4. A Clean Financial Record

“Someone facing bankruptcy is not a good person to have handling the offering,” Busby said.

He recommends background checks—just as churches screen childcare workers. These checks can uncover financial red flags. If your church performs financial background checks, especially for paid employees, make certain it complies with the Federal Credit Reporting Act (FCRA)—learn more about the act in this article about employee handbooks by attorney and CPA Frank Sommerville.

5. Basic Finance Skills

People don’t need to be CPAs, but they should be comfortable with the responsibilities.

“They need to be gifted in the faithful administration of God’s resources,” Busby said.

That sentiment resonated with Warkentin from Corn Mennonite Brethren Church.

“I really love bookkeeping, so I found my niche here,” she added.

6. Tact and Sensitivity

Laue shared a scenario many treasurers face:

“Someone’s donation check bounces—it’s awkward. You need people who can handle that with grace.”

7. Timeliness

Punctuality is a must.

“It isn’t unusual to see churches behind in reconciling accounts,” Busby noted. “That’s an open door for fraud.”

Integrity Is Part of Your Witness

A well-functioning financial team does more than protect funds—it protects your church’s reputation.

“This is important work,” Busby said. “This work is for people who are passionate about protecting the reputation of Jesus Christ.”

We’ve used a combination of AI and human review to make this content easier to read and understand.

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Do Lapsed Credentials Affect a Minister’s Housing Allowance?

Discover how lapsed credentials impact a clergy housing allowance and steps to navigate eligibility.

Richard R. Hammar, Attorney, CPA
Bio

Last Reviewed: January 18, 2025

Q: Our minister’s ordained status lapsed for a few months this year due to his failure to timely renew his credentials with our denomination. How does this affect his housing allowance for the year?

How Do Lapsed Credentials Impact a Housing Allowance?

Technically, a housing allowance is only available to an “ordained, commissioned, or licensed minister.” Therefore, a housing allowance is not available while a minister’s credentials are lapsed.

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Can Reinstated Credentials Restore Eligibility?

If and when the minister’s credentials are reinstated, the reinstatement might “relate back” to the beginning of the year. While this is a plausible argument, it has not been definitively addressed by any court.

Implications for Ministerial Duties During Lapse

Even during a lapse, it could be argued that the minister retains the ability to:
  • Perform marriages and baptisms;
  • Qualify for clergy privilege in legal matters; and
  • Carry out other sacerdotal functions.

However, the validity of this position is subject to interpretation. It should therefore be discussed with a qualified tax professional or legal advisor.

Because no court has directly ruled on this issue, no definitive answer is possible. Ministers and church leaders should consult with a qualified tax professional to navigate this complex situation and ensure compliance with IRS guidelines.

FAQs About Clergy Housing Allowance and Credentials

What is a clergy housing allowance?

A clergy housing allowance is a portion of a minister’s compensation designated for housing expenses, which can be excluded from taxable income.

Can a minister with lapsed credentials claim a housing allowance?

No, during the period when a minister’s credentials have lapsed, they technically do not qualify for a housing allowance.

Does reinstating credentials retroactively restore eligibility?

It could be argued that reinstating credentials corrects the lapse retroactively, but no definitive court ruling exists on this matter.

What steps should a church take during a credential lapse?

Churches should work with a tax professional to evaluate the situation and ensure compliance with applicable tax laws and IRS regulations.

Conclusion

Lapsed credentials can impact a minister’s housing allowance eligibility, though reinstatement might provide an argument for retroactive correction. Because this issue has not been addressed by courts, seeking guidance from a tax professional or legal advisor is highly recommended. For more information, consult resources like the Church & Clergy Tax Guide.
Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.
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Liability for Diversion of Funds in Churches

Learn the legal risks for churches that divert donor-designated funds and how to handle these situations responsibly.

Richard R. Hammar, Attorney, CPA
Bio

Last Reviewed: January 24, 2025

It is common for church members to make “designated” or restricted charitable contributions to their church, specifying that their contributions be used for a particular purpose. But what happens if a church board applies such contributions to another purpose? Are there legal consequences for the church or its leadership?

A recent decision by the Mississippi Supreme Court offers critical insights into this issue. The ruling not only discusses the consequences of using donor-restricted funds for other purposes but also highlights the potential for donors to reclaim their contributions under certain conditions.

Understanding Donor-Designated Funds
  • What are donor-designated funds? These are contributions explicitly earmarked by the donor for a specific purpose, such as a building fund or community outreach project.
  • Legal implications: Churches must adhere to the donor’s restrictions when using these funds. Diverting them for other purposes can lead to lawsuits or legal penalties.

Case Study: St. Paul Catholic Church

In the aftermath of Hurricane Katrina, St. Paul Catholic Church raised funds specifically for rebuilding its church. However, the funds were later diverted when the church decided to merge with another parish and abandon rebuilding plans.

Donors filed lawsuits alleging misrepresentation and improper fund use. The Mississippi Supreme Court ruled:
  • Churches cannot use donor-designated funds for purposes other than those explicitly stated without donor consent.
  • Donors may have the legal right to reclaim contributions if the church fails to use them for the designated purpose.

Over the past 150 years, several court cases have addressed the misuse of donor-designated funds:
  • Adler v. Save: Donors successfully reclaimed funds when a charity failed to meet conditions tied to their donation.
  • Tennessee UDC v. Vanderbilt University: A university was required to either honor the original conditions of a gift or refund its current value to the donors.
  • Estate of Champlin: A Maine court ruled that unreasonable delays in fulfilling the purpose of a restricted donation could constitute grounds for refunding the donation.

Implications for Churches

Churches face serious risks if they fail to honor donor restrictions:
  • Legal liability: Donors may sue to reclaim their contributions.
  • Loss of trust: Mismanagement of funds can damage a church’s reputation and donor relationships.
  • Tax compliance: Returning contributions can have tax implications for both the donor and the church.

Best Practices for Managing Designated Funds

To avoid potential issues, churches should:
  1. Clearly document and honor donor restrictions.
  2. Seek donor consent before repurposing funds.
  3. Include disclaimers in solicitation materials, such as: “Donations may be redirected if the project is canceled or overfunded.”
  4. Consult legal counsel before making decisions about restricted funds.

FAQs on Diversion of Funds

1. What constitutes a “diversion of funds”?

Using donor-restricted funds for purposes other than the donor’s specified intention without their consent.

2. Can a church legally redirect restricted funds?

In most cases, no. Churches must use these funds as specified or seek donor consent for redirection.

3. What happens if a donor cannot be identified?

If a donor cannot be identified, the church may need to seek court approval to redirect the funds under specific guidelines like the Uniform Prudent Management of Institutional Funds Act (UPMIFA).

4. Can donors reclaim their contributions?

Yes, donors may reclaim their contributions if the church fails to use the funds for the designated purpose or abandons the project entirely.

Conclusion

Churches have a legal and ethical responsibility to honor donor-designated funds. Mismanagement can lead to legal disputes, loss of trust, and financial challenges. By following best practices and consulting with legal experts, churches can ensure compliance and maintain donor confidence.

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

Effective Strategies for Church Missions Fundraising

Learn effective church missions fundraising strategies to inspire generosity and connect your congregation with impactful global projects.

Ruth Moon
Bio

Last Reviewed: January 25, 2025

1. Let your congregation see where their money is going. “People love to give to something they can see,” says Dan Crane, missions pastor at First Evangelical Free Church in Fullerton, California. Crane finds that supporting projects like wells, orphanages, and other tangible programs, and telling donors exactly which projects are supported, encourages continued giving.

2. Tailor missions investment to projects your community is passionate about. If no one in your church is interested in supporting a missions organization, consider something more development- and humanitarian-focused. “I try to find out what God wants our church to do, because there are so many needs,” said Crane. “I spend a lot of time in prayer, thinking and talking and pondering.”

3. Invest in relationships. “Key factors in giving are the role model of the senior pastor and a church’s relational connection with teams around the world,” says Tim Crouch, vice president of international ministries for the Christian & Missionary Alliance. Congregations who know the people their money supports, either from vision trips or visits from missionaries, are more likely to keep giving.

4. Diversify your investment. Some people might want to buy goats for a community in Rwanda; others might want to run to raise money for water. “We try to support a wide swath and a lot of different places,” says Mark Wilson, senior pastor of Hayward Wesleyan Church in Hayward, Wisconsin. “We’re hoping there will be something to connect with everybody in our faith promises.”

For further insights into funding and administering your church’s missions budget, see these articles:
Image: AdobeStock/Gyorgy

Key Considerations for Maintaining Financial Integrity in Churches

Protect your church’s financial integrity with practical strategies for governance, financial controls, risk management, and transparent decision-making.

Gregg Capin
Bio

Last Reviewed: January 25, 2025

Amidst the daily duties and demands church leaders encounter, it is not easy to maintain perspective on factors that can protect or diminish integrity. But consider the immeasurable benefit of maintaining integrity—and the cost of compromising it.

To help protect and maintain the financial integrity of your church and leadership, this checklist contains five key areas of considerations built on a framework of:
  • Consistency with faith and values: “For we are taking pains to do what is right, not only in the eyes of the Lord, but also in the eyes of man.” (2 Cor. 8:21)
  • Conformity with laws and regulations: giving “back to Caesar what is Caesar’s…” (Mark 12:17)
  • Clarity of message: avoiding impropriety or the appearance of wrongdoing; being transparent and truthful to avoid even the appearance of impropriety.

The following checklist does not cover all areas but is meant to help focus your thinking about financial integrity. Keep in mind that accountability is paramount at all levels, and even one oversight can result in a significant failure.

Responsible Governance

___ Have a high regard for legal parameters, tax forms, and status (charter, corporation, registrations, etc.) in order to support the church’s operations and vision through appropriate structure, legal position, and tax compliance.

___ Understand fiduciary responsibilities (duties of loyalty, care, and obedience).

___ Define the roles and responsibilities of the board and its members. This starts with a governance framework that is defined and set forth in board policies. The most effective boards know their role and execute their position.

___ Know exempt organization responsibilities so you can identify potentially problematic areas that can negatively reflect on character and competence.

___ Maintain active board oversight and monitoring of financial policies, operations, and controls, including ongoing risk assessments.

It is often said that tone at the top is everything and permeates an organization. There is ample evidence that this is true, and responsibility starts with leaders, especially those on an organization’s board.

As with our Christian witness, actions speak louder than words. A governing board leaves the door open to failure when it does not empower accountability by rigorously fulfilling its fiduciary duties and exercising effective oversight and monitoring. It’s also imperative for boards to define appropriate conduct and misconduct.

To be effective, boards must ensure accountability by understanding the cost/benefit of controls and what can go wrong without them.

Effective Financial Control

___ Establish written policies and procedures that include a clear delineation of the roles, functions, and duties of all people, positions, and groups, and then monitor those to ensure they are working.

___ Maintain segregation of duties, with multiple people involved to prevent and detect problems and monitor the effects of change on people, processes, and systems. These basic controls (checks and balances) should be an ongoing priority.

___ Monitor internal and external fraud risk and know how to respond to suspected fraud.

___ Consider internal audit procedures, which can be performed in any size church, as well as independent financial audits and legal evaluations, which can be right-sized for your church.

Financial integrity is dependent on financial control that prevents and detects problems. Control goes beyond exercising care with financial assets to stewarding and protecting people as well.

Wise Financial Management

___ Ensure that you receive timely, accurate, and reliable financial reporting, including key financial indicators, trends, and ratios. Your board and management need this information to make effective decisions and to anticipate and avoid problems.

___ Monitor church-specific, local, regional, and national giving trends, such as annual giving and budget survey findings. Understand the factors behind these trends.

___ Establish and maintain dynamic budgetary controls that are responsive to changing circumstances.

___ Maintain adequate financial reserves to weather unforeseen circumstances.

___ Adhere to strict guidelines for the acceptance and appropriate use of offerings and restricted contributions that avoid conduit of funds (funds that are received but then passed on to other individuals or organizations) and other concerns (including tax areas such as benevolence and scholarships).

The decisions your church makes and the way it conducts operations merit careful consideration. This requires good organization, clear core values, having the right people in the right positions, effective systems and processes, strong controls, and an uncompromising commitment to accountability.

Appropriate Compensation and Benefits

___ Increase human resource awareness and skills of all staff by providing guidelines and training in areas such as hiring, supervision, and compensation and benefits. Maintain personnel files with required tax and legal information, including periodic evaluations. This is an area of significant risk for churches, and mistakes can lead to litigation and can affect a church’s reputation.

___ Manage intellectual property ownership through clear guidelines and consistent practices, including a general church policy of ownership absent specific identification and agreement. This should provide a clear understanding for all individuals, whether personnel, leaders, or board members.

___ Perform careful retirement planning. Options and resources are limited, so time is critical. This is particularly an area of concern for start-up and nondenominational churches.

___ Document the reasonableness of compensation and the ministry’s compliance with excess benefit rules.

This is an area that can stretch the bounds of trust and transparency. There is an inherent conflict of interest that cuts to the core of integrity and values. What constitutes appropriate compensation and benefits to one person can be different in the eyes of another. The key is to understand the perspective of stakeholders and to base decisions on compensation studies that identify comparability with other churches.

Risk Identification and Management

___ Maintain an intentional and formal risk assessment process that is monitored by the board.

___ Monitor legal and regulatory developments, such as in religious hiring, ministerial status, and tax law.

___ Watch the horizon to be aware of developments that can affect your church. This includes fraud and financial failures, economic changes, giving trends, technology security, and many more.

Beyond reliance on God and a commitment to core values, avoiding problems is difficult without continually identifying risks and evaluating the potential effects of taking appropriate action.

Although there is a lot to monitor, it’s vital to be aware of, and respond to, these crucial areas in order to maintain financial integrity and protect the reputation and standing of your church leadership.

Gregg Capin is a partner at CapinCrouse and has over 30 years of experience managing audit and advisory services for a wide range of not-for-profit organizations both nationally and internationally. He has participated in national organizations involved in not-for-profit initiatives such as AICPA, ECFA, FASB and others. CapinCrouse offers a tool, The Church Financial Health Index™, to help with not-for-profit financial management and is available at CapinCrouse.com .
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7 Essential Guidelines for Church Missions Funding

Learn 7 critical guidelines to ensure compliant and effective church missions funding, from tax rules to donor contributions.

Chris Lutes
Bio

Last Reviewed: January 27, 2025

Missions is an essential component of any church budget. But the ins-and-outs of supporting missions and missionaries are fraught with potential tax and legal issues. By following these seven guidelines, you can avoid many financial headaches and more easily navigate the often tricky area of missions funding.

1. Donors give to missions, not to missionaries

Zach wants to give to his niece’s summer missions trip, so he writes a check in her name and drops it in the offering plate. But Zach might be jeopardizing his chances of receiving a deduction.

Why? Donations must be given to a specified fund and not to an individual.

CPA Elaine Sommerville explains: “The church can allow the donors to indicate the particular participant they wish to support. However, a church must convey to the donor that it may use the donation for other participants, other missions trip expenses, or even future missions trips in the event the selected participant receives excess designated funds or the indicated participant does not go on the trip. This message should be contained in any fundraising material.”

See “Designated Contributions” in Church Finance (pages 72-76). For specific insights on fundraising, see “Rule 3—individual quid pro quo cash contributions of $75 or less” and “Rule 4—individual quid pro quo contributions of more than $75” (pages 81-83).

2. Fund foreign activities through missions agencies

While on a business trip, Lindsey, one of your elders, visits a small, struggling church in a developing country. She is impressed by the pastor’s efforts to reach out to his impoverished community. When she returns home, Lindsey talks to her pastor and fellow elders about providing funds to help this pastor and his church.

While Lindsey’s heart is in the right place, Frank Sommerville, an attorney and CPA, says such funding ventures are extremely risky.

“The IRS rules require that you maintain something called ‘expenditure responsibility’ over the funds that you send outside of the United States,” says Sommerville. “What that means is your church is responsible for how those funds are spent. So when you’re sending funds overseas you need to make sure the lumber that you paid for actually goes into building the church and not building the house for someone who’s over there.”

Then there’s the problem of funds inadvertently falling into the wrong hands.

“If any of those funds end up in a terrorist state, or in a terrorist organization, or supporting a terrorist or even a suspected terrorist,” says Sommerville, “that’s a criminal offense and the church treasurer and the missions committee that approved the transfer [of funds] could be looking at prison time.”

Sommerville strongly advises churches to work through their denominational missions agency or a well-established nondenominational missions organization.

See “Contributions made to or for the use of a qualified organization” in Church Finance (pages 70-71).

3. A church must justify compensation for missionaries it supports

Tyler has attended your church from infancy and is now graduating from college with a degree in missions studies. Within the next 18 months, he hopes to head out to a foreign missions field. Your church is excited to support him and makes plans to do so. But how much support should he receive?

Frank Sommerville says that funds given must further the “exempt purpose” of your missionary endeavors and they must also add up to a “reasonable amount” of compensation.

“The church has a responsibility for determining what a reasonable amount of compensation would be,” says Sommerville. “The church also needs to determine whether or not other churches are involved in supporting this missionary. If you had 20 churches sending $1,000 a month, that’s $20,000 in income. In most places in the world, taking even $10,000 a month is going to be considered excessive. So you have to be aware of all of the funds coming from U.S. churches and how those funds are spent.”

Sommerville says that careful records must be kept of all expenditures, and he suggests that the missionary keep a daily activity log to help justify his or her compensation.

See “Missionaries” in the annual Church & Clergy Tax Guide (Chapter 8).

4. Distinguish ministry days from personal days

A group of adults from your church is heading off to Ecuador for a three-week missions trip this summer. At the end of the volunteer ministry work, the group plans to spend a couple of days seeing the local sites. Before the group leaves, this question comes up: “Will all our travel expenses be deductible?”

The answer: Only those days spent in actual ministry are deductible.

“A ministry day is where you are ministering for the benefit of others,” says Frank Sommerville. “A personal day is a vacation day. And the expenses related to a personal day are not tax-deductible.”

To validate actual ministry days, Sommerville encourages the missions team to keep a daily log of missions-related activities.

See “Principle 3: no significant element of personal pleasure” in the Church & Clergy Tax Guide (Chapter 8).

5. Participants must actually participate

Tim, your church’s youth pastor, wants to take his wife and young children on a summer missions trip. Although he’s pretty sure funds raised for his family’s travel are tax-deductible, he admits that his wife will be busy taking care of the kids and that she’ll have little involvement with “doing ministry.” Is Tim’s assumption correct?

“No,” says Richard Hammar. “Contributions given toward the travel expenses of the youth pastor’s wife and children would not be tax-deductible, because their travel is not primarily for ministry purposes.”

See “Principle 3: no significant element of personal pleasure” in the Church & Clergy Tax Guide (Chapter 8).

6. Serving is not deductible

Your missions team has enlisted three carpenters for a summer trip to India. During early planning meetings, one of the carpenters asks: “Will we be able to deduct the time we spend using our skills?”

Church Finance says, “No deduction is allowed for contribution of services. Church members who donate labor to their church may not deduct the value of their labor.”

See “Donated services” in Church Finance (page 66).

7. Travel expenses must be ministry-related and correctly documented

During prep meetings for an upcoming missions trip, the missions pastor assures participants that all “reasonable travel expenses” will be deductible.

The missions pastor is most likely correct. The Church & Clergy Tax Guide says, “Travel expenses incurred during a short-term missions trip which may qualify as a charitable contribution include air, rail, and bus transportation; out-of-pocket car expenses; taxi fares or other costs of transportation between the airport or station and your hotel; lodging costs; and the cost of meals.”

But remember: The travel must be for ministry and not for fun. And for expenses exceeding $250, the participant must keep a record of travel expenses, such as a copy of the plane ticket, and have written documentation from the church. This documentation should detail the services provided by the participant and should state that the participant received no goods or services in return for his or her volunteer work.

For a list of four specifics that should be in the church’s document, see “Unreimbursed expenses” in the Church & Clergy Tax Guide.
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Creating an Effective Church Dashboard Report

Simplify church financial reporting with an effective dashboard. Use visuals and key metrics to guide better discussions and decisions

Vonna Laue, CPA
Bio

Last Reviewed: January 25, 2025

Have you ever been driving and run out of gas? If so, it’s unlikely that you have done it more than a few times. It usually only takes one or two instances of the inconvenience, concern, and sometimes even embarrassment to help people remember to keep a closer eye on the fuel gauge.

The dashboard of your vehicle provides vital information. In addition to monitoring how much gas you have, the dashboard helps you ensure that you’re not speeding and that all of your car’s major systems are working properly.

A dashboard report serves the same purpose for a church. It takes pages of reports and summarizes the key data into one page of information, mostly in the form of graphs and charts. This report helps you keep an eye on essential information and alerts you when things begin to deviate from the norm. When prepared properly, it can also engage board members who may have been disinterested in operational or “business” matters.

Getting started

While there are software programs available to facilitate the creation of dashboard reports, Excel is all you need to get started. The simple graphing feature in Excel will allow you to create graphs or charts of various data and select the size and location you desire on a page.

Start by identifying the information you want to include. Keep in mind that this will change over time, so it doesn’t need to be perfect at the beginning. Consider the types of key financial and nonfinancial data your board and leadership ask for or monitor, as well as the information you believe they should focus on.

What information is needed?

Here are some pieces of financial and nonfinancial information you may choose to include:
  • Cash availability. It is imperative for church leaders to have a clear understanding of the difference between the cash balance and the cash available for use. This can be done simply by reflecting the cash balance less any current amounts due (including upcoming payroll), as well as amounts that are held for restricted purposes.
  • Budget versus actual amounts. A bar graph can provide an easy, visual way to show the budgeted and actual amounts of revenues and expenses and can help readers see if the church is ahead or behind where they expected to be financially.
  • Categories of expenses. A pie chart displaying what percentages of total expenses have been used for personnel costs, facilities, ministry, interest, or other areas may be useful for many.
  • Average contribution per attendee. Monitoring this data may enable you to budget for the future more effectively or encourage the congregation by showing what they have given.
  • Key ratios. This could include information such as days of cash on hand or current assets compared to current liabilities.
  • Attendance trends. How many people attended last week, last month, or last year?
  • Decisions for Christ. Monitoring the numerical growth or decline of the church is just one indicator of success. You may choose to keep leaders informed of the number of lives that have been changed.
  • Missions trips. If your church is heavily involved in missions, you may want to show the number of missions trips that have occurred or how many individuals from the church have participated.

Tips for creating an effective report

Here are a few key points to remember in implementing or maintaining a dashboard report:
  • Keep it succinct. The saying “less is more” applies here. Including too much information will defeat the purpose of this report.
  • Keep it visual. You may decide to include a couple of items in numeric format, but this should not be a sheet of facts and figures. People often respond better to visual information and will likely be more engaged in any ensuing discussion as a result.
  • Keep it clutter-free. There are many fancy things you can do with color and lines and graphics. Don’t! This will just become a distraction. Make sure there is ample white space throughout the page and that any text is large enough to easily read.
  • Keep it trendy. This doesn’t mean you need to use the newest gadget or social media to present the information. This means you can tell a lot about where a church is going and what the financial needs and resources will be by monitoring trends. Consider how you can include this type of information to assist in the decision-making process.
  • Keep it relevant. Make sure you ask the users of the dashboard report for input. It should include the information they find helpful. This will change over time as the needs of the church change as well as the people and personalities on the board or committees.

Give it a try, give it time

I encourage you to give this reporting method a try. As with anything new, it will take time to get the report exactly the way you want it and to train the readers. The end result, however, is likely to be better discussion, with more focus on the key areas of church management and less on inconsequential items. You’ll also save a lot of time and effort previously spent on printing and preparing lengthy board packets!
Vonna Laue has worked with ministries and churches for more than 20 years. Vonna was a partner with a national CPA firm serving not-for-profit entities through audit, review, tax, and advisory services. Most recently, she held the role of executive vice president for a Christian ministry that works to enhance trust in the church and ministry community.
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When to Postpone or Cancel Church Events

Guidelines for when safety and prudence trump the church’s schedule.

Matthew Hoxsie Mead
Bio

Last Reviewed: February 10, 2025

I live one hour north of New York City, an area where our church and the local population endure hurricanes, blizzards, ice storms, and a wide variety of other dangerous weather conditions. Our area is also affected by power outages that can go on for days, sometimes more than a week. Sometimes we cancel gatherings and sometimes we just press on. But how do you know which to do?

Do you cancel that board meeting? The Sunday service? That special program you’ve been planning for months?

I have a few rules that I have developed over the years which have thus far served me well as a rubric for cancelling or postponing church events.

Cancelling a Sunday service on Saturday night due to a weather forecast is usually a bad idea.

There are obviously exceptions—Hurricane Irene hit us on Sunday morning and we cancelled Sunday services that day—but there are many times when a predicted blizzard never materializes or it arrives with a whimper. Don’t cancel or postpone an event if your only worry is the chance of bad weather.

Follow the local and state government suggestions.

If the local officials have declared a state of emergency and told people to stay home, then you should cancel, too.

If you have no running water, heat, or lights, then cancel the event or send everyone home.

As I noted above, we have frequent power outages in the Northeast. At our Christmas Pageant this year, the power went out. For us, that meant no lighting, no heating, and no running water (we have a well). We were about to sit down to a post-pageant potluck, when suddenly the lights went out. Within two minutes of the power going out, several children were crying and the older kids were running around like it was Halloween.

After checking with the power company and being informed it would take hours to restore power, I sent everyone home. I know some people weren’t happy, but if you keep the event going and someone gets hurt, you risk serious liability. Even though in this case, the power came back on 30 minutes later, it was still the right thing to do given our inability to predict when it might be safe again.

If it is dark and cold when you’re without power, shut it down.

My church can temporarily supply running water to the church via a backup generator at the rectory. That allows us to finish a daytime, warm weather event that is still in progress because we can just go outside or see by the daylight and we can still use the bathrooms with the running generator. That said, if it is dark and cold, we shut down immediately.

Cancel every upcoming event when you have an extended power outage.

Each time we have an extended power outage, a committee leader or the head of the boy scouts or the AA liaison insists that “we can bring in candles and lanterns.” But that is asking for a fire hazard and even liability. No dice—safety first!

Design events with a secondary “rain date” in mind.

Some events can theoretically be postponed, like a Christmas pageant or a bake sale. Admittedly, we don’t do it enough, but I think a prudent way of scheduling any event includes having a predetermined rain or snow date. You can avoid a lot of handwringing if you have a rain or snow date.

Other events cannot be postponed – like a Christmas Eve midnight service. Thankfully, the church has seasons, so if Christmas Eve service is wiped out due to a snow storm, then the odds are good that the Sunday after Christmas will be packed.

Have reliable, accessible communication methods.

If you are affected by weather related postponements and cancellations, then it is important to have updated and accessible communication methods. We use a user opt-in/opt-out email list. Essentially, it is a blog and anyone can sign up for it. Once you are signed up, you receive every post. I can send out a newsfeed blast to everyone from my office computer, my home computer, my smartphone, tablet, or any device that is connected to the Internet. Because it is a blog format, the posts are public, and that means you need to refrain from sending out personal information to everyone (you shouldn’t do that anyway!).

Add an alternate service in lieu of a canceled one.

If you have good communication with the congregation, you can cancel one service and add an alternate one. When Hurricane Irene hit, we offered a Saturday afternoon Eucharist and cancelled our Sunday services. I sent out an email to the congregation on Saturday morning noting what we were doing. We had a 17-minute service including the Eucharist, singing three a capella hymns, and a homily. We had more than 50 people present and they all appreciated the fact that they were able to come together for prayer and worship despite the irregular circumstances.

Matthew Hoxsie Mead is an Episcopal priest and Rector of the Church of the Good Shepherd in the Episcopal Diocese of New York. This post first appeared on FatherMatt.com and is adapted with permission.
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Communicating Financial Information to Church Leaders

Tips for effectively communicating financial information to church leaders and boards.

Vonna Laue, CPA
Bio

Last Reviewed: January 26, 2025

Communicating financial information to governing boards and finance or audit committees is an important task for management—but it’s also not an easy one. There are several factors that can complicate the process, and those factors lie both with those who receive the information and those who provide it.

Common Challenges Church Leaders Face
  • They don’t really understand how the church operates.
  • They are too involved or not involved enough to know what is really happening.
  • They don’t care how decisions affect the staff.
  • Board composition changes frequently, making continuity a challenge.

It’s important to remember that the responsibilities and expectations for church boards are greater now than ever. Staff must provide accurate and timely information to help boards make informed decisions.

Build a Strong Foundation

Many board members are willing but untrained. Consider implementing a robust orientation process to help new members understand:
  • The church’s organizational structure and history.
  • Past board minutes, policies, and governing documents.

Additionally, financial leaders should review financial statements with new members and conduct annual retreats or evaluations to identify training opportunities.

Provide Focused, Useful Information

When communicating financial information, ensure the focus remains on key data. Consider these three principles:

1. Accurate

Your credibility is crucial. Repeated errors can erode trust. Make accuracy a priority as the information will guide strategic decisions.

2. Timely

Delays in providing information can be as harmful as inaccuracies. Aim to close financial statements within two weeks of month-end and address delays promptly.

3. Relevant

Understand what your audience values most and tailor reports to their needs. Avoid overwhelming them with unnecessary details.

Create Dashboard Reports

Dashboard reports are effective tools for summarizing key data. These one-page reports often include:
  • Visuals like graphs for trends (e.g., attendance and giving).
  • Both financial and non-financial metrics (e.g., baptisms).

Dashboards engage all board members, even those without financial expertise, and help focus discussions on strategic issues.

Establish a Process and Adjust as Needed

Providing accurate, timely, and relevant information ensures sound financial decisions. Regularly refine your process by:
  • Understanding what information the board needs.
  • Adapting as the composition of the board changes.

Start with key metrics, adjust over time, and remember that less is often more when it comes to understanding and relevance.

FAQs
  • What is the best way to introduce new board members to financial information? Use an orientation process covering church structure, history, policies, and financial basics.
  • How can dashboard reports help church boards? They simplify complex data into visual summaries, focusing on key metrics and trends.
  • Why is timeliness important in financial reporting? Delays can render information useless, making it harder for boards to make informed decisions.
  • What are common mistakes when sharing financial information? Overloading reports with irrelevant data and failing to focus on accuracy, timeliness, and relevance.
Vonna Laue has worked with ministries and churches for more than 20 years. Vonna was a partner with a national CPA firm serving not-for-profit entities through audit, review, tax, and advisory services. Most recently, she held the role of executive vice president for a Christian ministry that works to enhance trust in the church and ministry community.
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Are Public Prayer Lists an Invasion of Privacy?

Take this key step before publicly sharing the needs of your congregation.

Richard R. Hammar, Attorney, CPA
Bio

Q: Some churches post “prayer lists” on their website that describe the prayer needs of identified members. These needs may include medical diagnoses, relational problems, or financial needs. Does the posting of this information on a church website constitute an invasion of privacy?

Possibly. A church can reduce if not eliminate this risk by obtaining consent from people before putting their names on the list. This can be done either by contacting persons directly and obtaining their written consent to having their name (and need) posted on the website prayer list or by instructing members to include this written consent at the time of prayer request submission if they desire for it to be shared publically online.

Some churches seek to avoid the inconvenience of obtaining the consent of every person on a prayer list by creating a “no prayer list” and notifying the congregation periodically (i.e., in church bulletins or newsletters) that persons who do not want the congregation to pray for them should contact the church office and have their names placed on the “no prayer list.” This “implied” consent is not as effective as the express consent obtained by contacting each person directly, and it is far from clear whether it would be deemed effective by a court.

It’s possible that many have a similar question about emailing prayer lists. While that might not be as problematic as posting prayers online, I still think it would be wise to obtain consent before including someone on such a list.
Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.
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Can a Minister Who Previously Opted Out of Social Security Change Their Mind?

Explore whether clergy can reverse their Social Security opt-out decision and the rules that govern this process.

Elaine L. Sommerville, CPA
Bio

Last Reviewed: January 2, 2025

When I was hired as a new pastor last year, I decided to opt out of Social Security. Now that I’ve learned more about the pros and cons of my decision, can I change it?

Understanding Social Security Opt-Out for Clergy

A minister’s earnings from performing ministerial duties are considered “net earnings from self-employment” under IRC Section 1402(a)(8). Due to this legal definition, ministers are treated as self-employed for Social Security and Medicare purposes—even if they are classified as common law employees for other employment tax purposes.

While a minister’s earnings are defined as self-employment income, ministers have the option to opt out of the system by filing Form 4361.

Criteria for Opting Out
  • The minister must conscientiously object or religiously oppose the acceptance of public insurance benefits related to death, disability, old age, retirement, or medical care, including benefits under the Social Security Act [IRC Sec. 1402(e)(1)].
  • The form must be filed by the due date of the minister’s tax return (including extensions) for the second year in which the minister earns at least $400 in self-employment income from ministerial services.

Once Form 4361 Is Approved
  • The opt-out is permanent unless the IRS determines the form was incorrectly filed.
  • Congressional approval is required for a minister to opt back into the system. Such opportunities have been rare, occurring only twice in the past 30 years.

Can a Minister Reverse the Opt-Out Decision?

Once Form 4361 is approved, the decision to opt out of Social Security is irrevocable under current laws. A minister cannot change their mind unless Congress passes legislation allowing it.

It’s important to note that any Social Security contributions from non-ministerial employment can still qualify for future benefits, provided the minister meets the eligibility requirements for being fully insured.

FAQs About Social Security Opt-Out for Clergy

What is the deadline for filing Form 4361? The form must be filed by the tax return due date (including extensions) for the second year in which a minister earns $400 or more from ministerial services. Can a minister opt back into Social Security? No, unless Congress provides an opportunity to do so. Such opportunities are rare. What happens to Social Security contributions from non-ministerial work? Earnings from other employment can be used to qualify for Social Security benefits if the minister is fully insured. Why is Form 4361 approval permanent? The approval signifies a minister’s religious or conscientious objection to public insurance, making it a lifelong decision unless the form was incorrectly filed or Congress intervenes.

Conclusion

Opting out of Social Security is a significant decision for clergy, one that cannot be reversed under current regulations. Ministers considering this option should weigh the long-term implications carefully and consult a tax professional or legal advisor for guidance. If you’re unsure about your eligibility or the consequences of opting out, seek expert advice to make an informed decision.

Elaine L. Sommerville is licensed as a certified public accountant by the State of Texas. She has worked in public accounting since 1985.
Image: AdobeStock/Cloud Cap

Church Contingency Budgeting: Preparing for Financial Surprises

Discover tips for church contingency budgeting, from addressing giving shortfalls to reducing expenses and planning for unexpected financial challenges.

Vonna Laue, CPA
Bio

Last Reviewed: January 27, 2025

Have you ever created a budget that was perfectly on target? Did you end a year and realize revenues and expenses were exactly what you expected?

That means it is smart to create contingency budgets that define what will happen if various changes in funding occur during the year at your church. From a primary budget, build one that is a certain percentage lower and build another that is a certain percentage higher. Doing this can minimize controversy later. If you find yourself above or below budget, you’re already ready to act with cuts or additions based on the overall vision of the church—not on the basis of who asks or complains the loudest.

Four Common Scenarios

A budget is a tool but it doesn’t guarantee results. The following four scenarios are the most common for churches to face during the course of a year:

Giving below budget, spending above budget. This is obviously the most difficult scenario. Hopefully, your church built up necessary reserves to carry it through times such as this. Every decision must be weighed carefully. Use caution to avoid short-sighted decisions. Instead, consider the unintended consequences of each cost-saving decision you make.

Giving at budget, spending above budget. Donations are in line with projections. That’s encouraging. But spending is more than budgeted. That’s tough from a cash-flow standpoint. This situation can easily arise when there is growth in attendance. It often takes newcomers about 18 months to begin financially supporting a ministry, but expenses related to serving them are immediate.

Giving below budget, spending below budget. This scenario may not be ideal, but it isn’t threatening to a church. If both giving and spending are below plan, it is typically because intentional cutbacks have been made to align spending with giving. That is prudent. But exercise caution with the cutbacks as well as any unintended consequences from those cutbacks.

Giving above budget, spending below budget. What an envious scenario, right? But it can present its own challenges. What do you do with the excess? Will donors see it as a positive reflection of financial management? Or will they think their money isn’t needed? Make sure you know what you will do with extra revenue; perhaps it’s the establishment of needed reserve funds or the replacement of outdated equipment. Whatever the plan, make sure you communicate what your church plans to do and why continued faithful giving is so important.

Revenue and Expense Tips

There is no magic budget tip, and you’ve probably considered and implemented many options. Let the following tips offer you and your leadership team helpful reminders or newfound inspiration as you consider how to build contingency budgets or respond when an unexpected situation arises.

Addressing Decreased Giving:

Offer more giving options. Encourage other forms of giving. One is gifts of appreciated securities or property, which are attractive to donors now while the market is strong and they can minimize capital gains taxes. What about online or automated clearing house (ACH) giving? Many churches continue to see significant increases with digital giving and it may be time to promote (or explore, depending on your situation) such options again. For instance, my daughters’ school recently changed to an online payment format, which has shortened the cash collection time from 10 days to 5 minutes. Also, don’t forget to investigate a mobile app. It may appeal to certain givers and make it faster and easier for people to give.

Make donors aware. Do the congregation and other supporters know that giving is down? They may increase their involvement if they are made aware through a thoughtful approach.

Consider restricted giving. Many donors, especially young people, will support a specific cause or project faster than they will support the general operations of the church. Explain the cause and the need, then celebrate when it is accomplished. One church I know published photos of parking lot potholes in the bulletin along with information about a campaign, then celebrated with photos of the completed project made possible by funds raised beyond the general budget.

Create a stewardship series. When did your pastor last preach a stewardship series? Take a holistic approach beyond money, too, by including stewardship of time and talents. Churches often avoid certain “uncomfortable” topics, but these are no less true or needed. Some churches trace a direct correlation between teaching on stewardship and increases in giving.

Understand your demographics. Do you have a young, growing demographic, or is the average donor 60 or older? Monitoring these trends helps predict where the church is headed and gives you more options and more time to implement change.

Tips to Reduce Expenses:

Conduct an expense reduction review. Has an outsider looked at your expenses? Sometimes an objective set of eyes can identify cuts. Possible areas of savings someone else might uncover include an energy audit, research into technology and communications expenses (and lower-cost alternatives and plans), and a review of benefit plan costs.

Ask the staff. Church staff, especially frontline employees, often know where to save money in the ministry.

Compare your ministry to others. Comparing budgets and other financial arrangements with other churches may identify areas where you are spending too much. Personnel costs and loan interest rates are two areas churches often find run higher than their peers.

Find synergy among departments. Is there ministry overlap? Places where one program can meet the needs or goals of multiple departments? One example: Pair the missions director and youth pastor to plan a short-term missions trip that meets the goals of both ministries.

Consider activities and their results, not just costs. Focusing on costs tends to perpetuate spending that has occurred in the past. Instead, evaluate various types of activities and their results. That helps prioritize what is spent compared to the results—and overall value—the activity brings. It also may reveal excessive costs that may be addressed through alternatives, whether it’s outsourcing a particular function or partnering with another group or church.

Thoughts about Change

Change is difficult, and so it’s vitally important for your church to communicate any contingency plans ahead of time.

A strong understanding of the financial strength or weakness of your church is valuable before you conduct a budgeting process. Consider financial indicators, such as previous financial performance, the amount of cash reserves, liquidity ratios, and not only how much cash the ministry has but how much cash should be set aside for restricted purposes. Being aware of these measures, as well as how they have changed over the past few years, will better prepare you to plan for the future and minimize the size of any later contingency plan you have to implement.

Hard work at the beginning can make the budget process work more smoothly through its adoption—especially if an unforeseen scenario with giving or expenses unfolds. Remember the words of Jesus in Luke 14 when he emphasizes the value of sitting down first and computing the cost before building a tower. The right planning creates the right foundation, and it helps make certain nothing crumbles when surprises arise.
Vonna Laue has worked with ministries and churches for more than 20 years. Vonna was a partner with a national CPA firm serving not-for-profit entities through audit, review, tax, and advisory services. Most recently, she held the role of executive vice president for a Christian ministry that works to enhance trust in the church and ministry community.
Image: Olena_T | Getty

6 Debt Ratios and Measurements Your Church Should Monitor

These calculations offer key clues about the health of the church’s finances.

Vonna Laue, CPA
Bio

Why is it important for churches to monitor debt ratios and measurements?

First of all, your lender will monitor them even if you aren’t. Keep in mind that many loan covenants are based on the results of key debt ratios. If you violate one, there may be penalties and, in extreme circumstances, the lender may even call your loan—requiring you to refinance or pay off the remaining balance. Most importantly, you will strain the relationship with your lender.

There are six debt ratios and measurements you can use to monitor your church’s dependence on debt levels and identify any needed adjustments. These represent important indicators every church should understand and monitor.

1. Debt to unrestricted contributions

total debt
____________________________
unrestricted contributions

This ratio measures how many times your debt is greater than annual unrestricted gifts. Lenders expect debt to be funded through unrestricted contributions. They determine what debt load a church will be able to handle on top of other required expenditures (salaries, benefits, facility expenses, mission expenses, and so on).

The lower the ratio, the less the debt will strain the church’s budget. A ratio that is too high indicates your church’s debt levels are placing an excessive burden on the budget. It also indicates your debt may be at a level that lenders consider too great for your church to support.

2. Current ratio

current assets
____________________________
current liabilities

This ratio helps determine how easily the church can meet its current obligations through current assets or resources. A low ratio (less than 1.0) indicates the church does not have enough in current resources to meet its upcoming short-term obligations. Shortfalls in current assets might force the church to borrow from restricted funds or obtain a temporary line of credit to cover short-term obligations. A ratio this low also warrants a careful review of cash flow and reserve levels.

3. Net asset position

total liabilities
____________________________
unrestricted net assets

This ratio measures the church’s ability to handle further debt (also known as its debt capacity). A low result suggests the church has capacity to take on additional debt. A higher result may indicate the church is stressed or unable to take on any further debt.

4. Mandatory debt service to unrestricted contributions

required annual principal and interest
(including capitalized interest)
____________________________
unrestricted contributions

This ratio is more commonly known as your church’s debt payment requirements. It looks at the percentage of unrestricted contributions that will be used to make these annual required debt payments.

Although your church may have many revenue sources, lenders typically only consider unrestricted contributions when determining how much debt a church can manage. Lenders also take into consideration other required expenditures your church has (salaries, benefits, facility expenses, mission expenses, and so on) before setting this level.

With the low variable interest rates presently available, a ratio kept below the covenant level allows for room in the budget in case the church’s interest rate increases.

5. Debt per average adult attendee and giving unit

total debt
____________________________
average adult attendees and giving units

This measure introduces the concept of a giving unit. This is a group of family members who contribute jointly to the church. A giving unit is also defined as any recurring supporter of the ministry. This excludes an individual that may make a smaller one-time gift supporting a specific event, such as a short-term mission trip. To identify only the regular recurring giving units, you must set a minimum dollar threshold; for instance a giving unit might be one that contributes more than $250 annually to the church.

This measure shows how much of the church’s debt each attendee or giving unit is carrying. We know the church’s debt is not a specific obligation to the attendees or giving units of that church, however it’s helpful to see these levels and whether they place an excessive burden on your congregation.

This measure will vary significantly based on the philosophy, denomination, location, age, size, and demographics of your church. Ultimately, your church must choose the level of debt it is comfortable servicing. When this level is compared to similar congregations, it can help you determine if your debt is too high or at an acceptable level. Trend comparisons over several years within your own church can also help.

6. Debt coverage

change in unrestricted net assets – interest
expense and depreciation expense
____________________________
mandatory debt service payments (principal + interest)

This ratio is used to determine how many times a church would be able to cover its current annual debt obligations from current operations. This may factor into the amount of reserves the church leadership deems necessary.

Other Key Ratios

For other imporant ratios and meaurements to keep on eye on, see “How Ratios Can Strengthen This Year’s Finances” and “4 Expense Ratios and Measurements Your Church Should Monitor.”

This ratio can fluctuate significantly between years since it includes the fiscal year’s change in unrestricted net assets. Debt covenants typically have a required score of 1.1–1.2. Ministry choices may drive the decision to spend unrestricted net assets and result in lower positive or negative change in unrestricted net assets. It is important to keep your lender informed of these decisions before negatively affecting this ratio.

Monitoring your church’s financial health

Measuring and monitoring debt and other key financial data will help your leadership team assess your church’s financial health, identify areas for improvement, and be good stewards of your resources.
Vonna Laue has worked with ministries and churches for more than 20 years. Vonna was a partner with a national CPA firm serving not-for-profit entities through audit, review, tax, and advisory services. Most recently, she held the role of executive vice president for a Christian ministry that works to enhance trust in the church and ministry community.
Image: AdobeStock/AungMyo

Church Mortgage Applications: Key Insights for Success

Discover tips for church mortgage applications, from avoiding consultants to demonstrating financial leadership and accountability.

Bobby Ross Jr.
Bio

Last Reviewed: January 27, 2025

Church Law & Tax interviewed Dan Mikes, executive vice president and national division manager for religious institution banking at Bank of the West, about how churches are faring in the lending market. He provided an interesting insight regarding one step churches sometimes take in a mortgage loan application process—and shouldn’t.

Are there any specific no-nos for churches in the mortgage application process?

From my experiences working with larger churches, this is a major no-no: Do not hire a broker or a consultant to go to the bank with your loan application.

Banks are putting out money over an extended period of time, and they want to assess, during the application process, the business acumen within the church staff. The relationship, going forward for many years, is not going to be with some consultant the church hired for the purpose of getting the loan. And lenders don’t want to know and don’t want to listen to that consultant. We want to interact with the resident business skill set from within the congregation.

Tough conversations sometimes needed

Sometimes we must have a tough conversation with a church who has sent us financial statements that show their accounts are down to zero, there’s no cash reserve, their attendance may be stable but giving has declined. From a basic fiscal perspective they need to be cutting staff, reducing benefits, yet now you find the person you’re talking to at the church doesn’t understand revenue minus expense and doesn’t understand what you’re talking about when you ask about cash flow or cash available for debt service, which adds back noncash items like depreciation. This person doesn’t have a basic understanding of a set of financial statements and can’t talk their way through them.

Understand what the bank needs

That’s when you have a real problem as a lender. Consequently, the lender’s posture may shift to a different tone. The banker is reporting to the risk manager about how the church plans to manage through the financial downturns. The risk manager is reviewing the conversation notes and can see the disconnect between the comments from the church and what the numbers on the statements show. At that point, there is diminished optimism on the lender’s part as it appears the lender is dealing with people who cannot talk the same language about what the circumstances are and how they will be addressed.

So it’s really important that the church understands that the bank is looking to enter into a relationship with it, and relationships have to happen between people. There has to be a certain amount of compatibility in the content of the conversation. It’s not just about numbers—it’s about leadership and how this organization is managed.

Go deeper on churches and loan applications with the article “Get a Loan in the ‘New Economy.’” And bring your church’s financial leadership to new levels of accountability and excellence with the book Church Finance.
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