Our church board does an audit of our financial records on a quarterly basis. They review the income records, accounts payable and payroll checks for both the church and our Christian school. This past week our finance team got in a discussion about practices an accounting firm would use versus our practices. We have never had a CPA or firm do an audit because of the expense.
I instruct the board in what to audit and check, and I am also responsible for handling the income and paying the bills. I want them to have confidence that we have procedures in place that, to the best of our ability, safeguard the church and me. What guidelines would CPAs use if they were to audit a church’s books?
Here is a checklist of some items that may prove helpful when your board conducts its audit:
- Minutes for meetings (board, financial committee, executive committee): look for financial transactions
- Internal controls: are they adequate?
- Expense reports of executive employees
- Pledges/contributions receivable: were any received that were not recorded and should have been?
- Unrecorded trusts and estates
- Cash: review bank reconciliations
- Investments: determine if the statements agree to the general ledger
- Accounts and notes receivable: make sure there is support for the amounts
- Property, plant, and equipment (PPE): have additions and disposals been recorded and is depreciation accurate?
- Inventory: is there support for this amount?
- Accounts payable and accrued expenses: have all amounts incurred but not paid (including payroll and vacation time) been accrued?
- Deferred revenue: if the revenue hasn’t been earned, is it reflected as a liability?
- Revenue: is the donor system reconciled to the general ledger?
- Notes payable: does the debt statement agree with the general ledger?
- Expenses: is there a reconciliation of the 941 reports with the payroll expenses?
Additionally, it’s generally good to do an analysis of current year to prior year amounts of revenue and expense to see if there are any large or unexplained differences.
While the above list is a portion of what a full audit would encompass, it can still seem overwhelming. Your board may want to select a few items and do them on a rotating quarterly basis.