Churches often wrestle with which policies to adopt. A well-crafted policy can enhance compliance, protect the church, and build trust among members. However, a poorly designed policy may create more problems than it solves.
This guide will help churches determine:
Which financial policies are essential
Which policies may be beneficial under specific circumstances
Key considerations before adopting a new policy
Key Considerations Before Adopting a Policy
Before drafting or implementing a policy, churches should ask:
Will it help ensure compliance with the law?
Does it protect the church and its members?
Will it enhance the church’s ability to fulfill its mission?
Does it foster confidence and trust among congregants?
Some aspects of financial operations—such as expense reimbursements and internal controls—may be effectively managed through staff procedures instead of board-approved policies.
💡 A Note on Risk:
- More policies = More monitoring and enforcement.
- Failing to follow an adopted policy can increase liability more than not having a policy at all.
- Each church must strike the right balance between oversight and flexibility.
That said, some financial policies are critical for every church, while others should be considered based on specific needs.
Essential Financial Policies for Every Church
1. Budget Administration Policy
Why it matters: The budget is one of the church’s most important financial tools.
What it should include:
- Process for approving and administering the church’s budget
- Oversight for operating, capital, and debt-related expenditures
- Procedures for handling budget overages
This policy can be outlined in bylaws or a separate board-approved document.
2. Conflicts-of-Interest Policy
Why it matters: Churches must avoid financial transactions that create ethical concerns or violate tax laws.
What it should address:
- When leaders (board members, staff) have a financial interest in church transactions
- Restrictions under federal tax law and state nonprofit laws
- Public perception of financial dealings (even if legally sound)
📌 Example: A board member selling property to the church at a discount may seem beneficial—but could still raise scrutiny. A well-drafted policy ensures transparency and integrity.
3. Executive Compensation Policy
Why it matters: Church leaders must not set their own salaries, and compensation must comply with federal tax laws.
What it should include:
- The process for setting and approving compensation
- Documentation requirements for legal compliance
- Ensuring fair comparisons to similar roles in other organizations
Potential consequences: Noncompliance with federal guidelines can lead to tax penalties and reputational harm.
4. Fraud, Dishonesty, and Whistleblower Protection Policy
Why it matters: Churches need clear protections against unethical behavior and safe reporting mechanisms.
Key components:
- Explicitly prohibits fraud and financial misconduct
- Establishes confidential reporting channels
- Protects whistleblowers from retaliation (as required by Sarbanes-Oxley Act)
- Defines oversight responsibility (e.g., a Compliance Officer or Audit Committee)
✅ Tip: A well-drafted policy encourages transparency and discourages financial misconduct.
5. Document Retention Policy
Why it matters: Federal and state laws require recordkeeping compliance for tax, employment, and financial reporting.
What it should address:
- Retention timelines for key financial documents (e.g., tax records, donor data)
- Legal compliance with IRS and regulatory agencies
- Procedures for secure disposal of outdated documents
6. Donor Privacy Policy
Why it matters: Donors want assurance that their personal and financial information is protected.
What it should include:
- How donor data is collected and stored
- Whether information will be shared with third parties
- How donors can opt out of specific uses of their data
💡 Best practice: Make the donor privacy policy easily accessible on the church’s website.
7. Board Approval for Debt & Financial Obligations
Why it matters: Churches should have clear oversight on borrowing and contractual commitments.
What it should require:
- Board approval for issuing debt above a set threshold
- Guidelines for approving leases, mortgages, or liens
- Whether a supermajority vote (e.g., 75%) is needed for large financial decisions
This policy can be in bylaws or a standalone document.
Policies to Consider Based on Church Needs
1. Gift Acceptance Policy
Why it matters: Some gifts (e.g., real estate, business interests, restricted donations) require careful evaluation.
What it should address:
- Criteria for accepting or declining gifts
- Who in the church reviews and approves non-cash donations
- How naming rights or restrictions will be handled
🔹 Ideal for: Churches that frequently receive non-traditional or restricted gifts.
2. Executive Expense Reimbursement Policy
Why it matters: Prevents misuse of church funds for personal expenses.
What it should include:
- Clear guidelines on eligible expenses
- Restrictions on alcohol, first-class travel, entertainment, and personal spending
- Required documentation (e.g., receipts, approval process)
🔹 Best for: Churches with multiple leaders incurring expenses on behalf of the church.
3. Additional Policies Based on Legal Requirements
Churches may need additional policies depending on state laws and unique circumstances.
📌 Examples:
- Investment Policy (if managing large assets or endowments)
- Fundraising & Solicitation Policy (for handling public donations)
- Use of Church-Owned Vehicles Policy (for liability protection)
Consult legal counsel to determine specific requirements for your church.
Final Thoughts
Every church must evaluate which policies are necessary based on its size, structure, and financial complexity.
Start with the essentials (budget, conflict of interest, fraud protection).
Add policies as needed for financial oversight and risk management.
Review policies regularly to ensure compliance and effectiveness.
Before adopting any policy, church leadership should consult with legal counsel to tailor it to the church’s unique needs.
