Background. Most churches, at least occasionally, accumulate funds in excess of current expenses, and church leaders must decide what to do with these funds. This can happen in a number of ways, including the following:
- A church's income may exceed expenses for a period of time.
- A church creates a "designated fund" for a special purpose, such as a building fund. Such a fund may be sizable, and can last for several months or even years.
- One or more donors contribute funds for a specific purpose that has not yet been implemented. For example, donors contribute to their church's benevolence fund. The fund accumulates several thousand dollars during the year in excess of distributions.
In each of these cases church leaders must decide what to do with the accumulated funds. What legal responsibilities do church treasurers, and other church leaders, have when it comes to investing church funds? Can they be legally accountable for bad investments? How can they minimize their risk of liability? These are important questions that are addressed in this article.
Key point. This article contains information of vital importance to members of your governing board. We recommend that it be reviewed by every board member.
The fiduciary duty of "due care." Those who serve on a board of directors, whether for a church or any other organization, have a legal duty to perform their duties "in good faith, in a manner they reasonably believe to be in the best interests of the corporation, and with such care as an ordinarily prudent person in a like position would use under similar circumstances." This duty commonly is referred to as the "prudent person rule" or the "duty of due care."