Authority to Control Church Bank Accounts

Changes must follow procedural requirements.

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

Background. Is a bank required to honor a change in signature authority on church accounts if the change failed to comply with the church’s constitution? That was the issue facing a Georgia court in a recent case. A church’s bank accounts stated that all checks and withdrawals had to be approved by the senior pastor. A dispute arose in the church, and the congregation was divided over the issue of whether or not to retain their pastor. The church board held an “emergency meeting” at which it removed the pastor and replaced him with another pastor. The board also amended its bank accounts to require that all checks and withdrawals be approved by the new pastor. The former pastor claimed that the board’s actions were invalid because they violated the church constitution. The constitution required that the senior pastor approve any actions adopted by the board. The former pastor claimed that he had not been asked to approve the board’s attempt to change the church bank accounts, and therefore the board’s action was legally invalid. The bank asked a court to determine who controlled the church’s accounts.

The board’s actions were invalid. The court ruled that the board failed to follow the church constitution in attempting to change the bank accounts. The effect of this failure? The board’s attempt to substitute the new pastor on the bank accounts failed. Such a substitution required the former pastor’s approval—according to the church constitution.

The court concluded that it was not barred by the first amendment’s guaranty of religious freedom from resolving this lawsuit. It observed that “the sole issue is not of a religious nature but is secular—whether the board at its emergency meeting duly complied with the provisions of the written constitution. The court’s involvement does not call for the resolution of any ecclesiastical or theological dispute.”

Moral.Every church with a bank account has completed a card or resolution identifying those persons with signature authority. If such a person is removed from office in a manner that violates the church’s constitution or bylaws, then a bank may question the validity of such an action. This can result in unfortunate delays in accessing church funds, which may result in delays in meeting payroll obligations or in paying church debts. This is one of the consequences of attempting to take action in violation of the church’s constitution or bylaws.

Key point. Any attempt by a church to remove a person from office who has signature authority over church bank accounts must be in strict compliance with the church’s constitution or bylaws.

Checklist. Now is a good time to review your records to see who has signature authority over your church bank accounts. Here is a checklist of questions you should ask:

(1) In which banks does the church maintain accounts?

(2) Which persons have signature authority to write checks or make withdrawals?

(3) Are the persons with authority to write checks and make withdrawals the persons duly authorized by the church’s constitution, bylaws, or pertinent board or congregational resolution? If not, this discrepancy should be addressed immediately.

(4) Does your church require the signature of two persons on all checks and withdrawals? If not, this is a serious weakness in your church’s internal control that should be addressed immediately.

This article originally appeared in Church Treasurer Alert, November 1997.

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