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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.
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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.
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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.
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The Risks of Taking Social Security Early

Understand the risks of early Social Security benefits and explore your options for withdrawal or suspension.

Richard R. Hammar, Attorney, CPA
Bio

Last Reviewed: January 17, 2025

Q: I started receiving Social Security retirement benefits at age 62, even though I had not retired. As a result, my benefits have been significantly reduced. Is there any way to change my mind and stop receiving benefits?

Understanding the Risks of Early Retirement Benefits

Taking Social Security retirement benefits before reaching full retirement age can result in a significant reduction in benefits. For individuals who begin receiving benefits before their full retirement age, Social Security reduces benefits by $1 for every $2 of earned income exceeding a set threshold. For example, in 2023, this annual earnings limit is $21,240.

Full retirement age varies depending on your birth year. For those born between 1943 and 1954, it is 66 years. Choosing to receive benefits at age 62 often leads to regret due to the financial impact. Fortunately, there are options for individuals who want to adjust their decision.

Can You Change Your Decision?

Withdrawing Your Social Security Application

If you change your mind within 12 months of starting Social Security retirement benefits, you may withdraw your application and reapply later. However, you can only withdraw your application once in your lifetime.

Key Requirements for Withdrawal
  • You must repay all benefits received, including:
    • Benefits paid to your spouse or children based on your application.
    • Withheld amounts for Medicare premiums, voluntary tax withholding, and garnishments.
  • If already enrolled in Medicare, you may also withdraw Medicare coverage but are not required to do so.
  • Use Social Security Form SSA-521 to submit your withdrawal request. Be sure to clearly state if you want to withdraw Medicare coverage as part of the application.

The Social Security Administration will calculate the total repayment amount and notify you. You have 60 days to cancel an approved withdrawal request, after which your decision becomes final.

Suspending Benefits at Full Retirement Age

If you cannot withdraw your application and you have reached full retirement age (but are not yet 70), you can request to suspend your Social Security benefits. This suspension allows your benefits to grow until you restart them, potentially providing a larger monthly payment in the future.

Additional Considerations

Medicare Enrollment

If you are not yet enrolled in Medicare, be sure to apply three months before turning 65 to avoid penalties. If you withdraw Social Security benefits, Medicare enrollment is not automatic and must be addressed separately.

Impact on Veterans’ Benefits

If you receive veterans’ benefits, consult the Department of Veterans Affairs (VA) to understand how withdrawing Social Security benefits may affect those benefits.

FAQs About Early Retirement and Social Security

What happens if I exceed the annual earnings limit while receiving benefits early? Your Social Security benefits will be reduced by $1 for every $2 of earnings above the annual limit. Can I reapply for Social Security benefits after withdrawing? Yes, but you must repay all benefits received and can only withdraw your application once in your lifetime. What is the benefit of suspending Social Security payments? Suspending benefits after full retirement age allows them to grow by up to 8% per year until you restart payments or reach age 70. How do I withdraw my Social Security application? Complete and submit Form SSA-521 to the Social Security Administration, including a reason for your withdrawal and any Medicare instructions.

Conclusion

Choosing to take Social Security benefits early comes with significant financial considerations. If you regret your decision, options like withdrawing your application or suspending benefits may provide relief. Always consult with a financial advisor or the Social Security Administration to make informed decisions based on your unique circumstances.
Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.
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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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The Fraud Triangle and How Internal Controls Protect Churches

Discover five ways strong internal controls protect your church from fraud, errors, and reputational damage while fostering financial accountability.

Vonna Laue, CPA
Bio

Last Reviewed: January 26, 2025

Church leaders should be familiar with the “fraud triangle”—the factors that typically contribute to a fraudulent activity: incentive, rationalization, opportunity.

The first two—incentive and rationalization—really can’t be controlled by church leaders. An incentive, such as debt or unexpected medical bills, and the corresponding rationalization (“I’ll just take a loan and repay it,” or “I deserve to get paid more so this money should be mine”) are on the individual.

But what church leaders can control is the third corner of that fraud triangle—opportunity. By focusing our efforts here, we can do a lot to prevent fraud.

The best way to address the opportunity for fraud is to establish strong internal controls. I often hear church leaders say that they trust their leaders and staff. Of course they do. If they didn’t, they wouldn’t be on staff! I tell them two things other church leaders have told me: “Trust isn’t an internal control” and: “Fear of getting caught is an internal control.” By establishing strong internal controls, we can deter someone contemplating committing an act of fraud—either because of incentive or rationalization—from acting at all.

Five ways to safeguard your church

While internal controls sound intimidating, they can safeguard your church in the following five ways.

1. Internal controls protect employees

With supervisors approving staff expense reports, and a board or finance committee member approving your pastor’s expense reports, your church can provide an oversight that eliminates a lot of questions.

2. Internal controls protect the assets and reputation of your church

You want to pass the “front page” test. When there’s good news about a church, it usually ends up in the lifestyle section of the local newspaper. But if there’s bad news? It’s usually on the front page. Or these days, it’s an easy target for widespread social media. With strong internal controls, a church can more easily refute erroneous claims brought by any form of media. Or better, avoid bad press altogether.

3. Internal controls provide reliable financial information

The better a church’s information, the better the decisions the church’s leaders can make.

4. Internal controls detect dishonest actions

If someone does act, out of incentive or rationalization, then it won’t take long for the internal controls to reveal it.

5. Internal controls detect honest errors

People make mistakes. The internal controls can also weed these out sooner rather than later.
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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How to File Form 6056

Discover the steps large employers need to take to file Form 6056 under the ACA requirements.

Richard R. Hammar, Attorney, CPA
Bio

Question: Should a church or employer file the 6056 return, and what does the process involve?

Overview of Section 6056 Requirements

The Affordable Care Act added Section 6056 to the Internal Revenue Code, requiring “applicable large employers” (ALEs) to file annual information returns with the IRS and provide statements to their full-time employees about the health insurance coverage offered. This is essential for administering the employer shared responsibility provisions and determining employee eligibility for premium tax credits.

Who Qualifies as an Applicable Large Employer?
  • An employer with an average of at least 50 full-time employees (including full-time equivalents) on business days during the preceding calendar year.
  • Full-time employees generally work at least 30 hours per week.
  • Religious or nonprofit employers are not exempt from these requirements.

Key Points About Filing Form 6056

The following are important considerations for ALEs:
  • The first filing requirements began for coverage offered in 2015, with returns due in 2016.
  • Form 1094-C (transmittal form) and Form 1095-C (employee statement) are required to satisfy the reporting requirements.
  • Large employers with self-insured health plans use Form 1095-C to meet both Section 6055 and 6056 requirements.

Reporting Deadlines
  • IRS Filing: File Form 1094-C and 1095-C by February 28 (or March 31 if filing electronically) of the year following the coverage year.
  • Employee Statements: Furnish statements to employees by January 31 of the year following the coverage year.

Filing Process and Methods

There are three main methods for filing under Section 6056:

General Method

The general method involves filing Form 1094-C and providing Form 1095-C for each full-time employee. These forms report the health coverage offered and other required details.

Alternative Methods

Two alternative reporting methods aim to reduce administrative burdens for employers. Detailed explanations of these methods are available on the IRS website (IRS Questions and Answers on Reporting).

Electronic Filing
  • Employers filing fewer than 250 returns may file on paper; others must file electronically.
  • Electronic furnishing of employee statements is permitted with employee consent.

Penalties for Noncompliance

Failure to file Form 6056 or furnish employee statements on time may result in penalties under Sections 6721 and 6722. Common issues include:
  • Missing deadlines
  • Omitting required information
  • Providing incorrect information

Employers may qualify for penalty waivers or abatements for reasonable cause under Section 6724.

FAQs About Filing Form 6056

What is the purpose of Form 6056? Form 6056 reports health coverage offered by ALEs to help the IRS administer shared responsibility provisions and determine premium tax credit eligibility. Do religious or nonprofit employers need to file? Yes, religious and nonprofit employers that meet the ALE criteria are subject to the same filing requirements. Can employers hire third-party providers to assist? Yes, third-party administrators can file returns and furnish employee statements on behalf of employers. Are there penalties for filing late? Yes, late filing or incorrect information may result in penalties. However, reasonable cause waivers may apply.

Conclusion

Filing Form 6056 is a critical responsibility for applicable large employers to comply with ACA requirements. Understanding deadlines, filing methods, and potential penalties ensures accurate and timely compliance. Employers should consult IRS resources or qualified professionals to navigate these obligations effectively.
Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.
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5 Key Ratios for Effective Church Cash Flow Management

Discover 5 essential ratios for church cash flow management to monitor reserves, plan for expenses, and improve financial health.

Vonna Laue, CPA
Bio

Last Reviewed: January 27, 2025

If your church goes through several months of low giving, will you be able to keep your doors open?

A church without necessary reserves will be scrambling to operate in the short term, no matter what the other balances are. Positive net income and net asset balances won’t make up for inadequate cash reserves or help in months when giving is down.

Fortunately, there are five cash flow ratios and measurements you can use to monitor your church’s reserves and identify any necessary adjustments. These represent important indicators every church should understand.

1. Days of Expendable Net Asset Reserves

Unrestricted Undesignated Net Assets + Board-designated Net Assets for Operations
_____________________________________________________
Cash Expenses (Total Expenses – Depreciation)

There are three cash flow ratios you can use to calculate how many “days” of cash reserves your church has, using different perspectives from the financial statements. To calculate how many day of reserves you have, multiply the ratio above by 365.

The first ratio tells how many days of operating expenses are available in net asset reserves. It takes into account the accrual of current assets and current liabilities. Keep in mind that the term “expendable net assets” represents the total resources available to spend on operations, excluding future gifts made or revenues generated by the church. It’s similar to a savings account.

Expendable net assets consist of unrestricted, undesignated net assets, which are net assets that result from achieving positive net income from all sources of revenues (excluding restricted revenues). It also includes amounts designated by the board for operating purposes other than capital expenditures. You divide this total by the amount of cash expenses to find your net asset reserves. Since all of these ratios measure cash flow, we use the term “cash expenses.” These are total expenses less deprecation, the most significant non-cash expense recorded.

This ratio can be temporarily high if the church has large unrestricted gifts on record that have not been spent by year’s end. Conversely, it can also appear low if the church incurs a large one-time expenditure that won’t be repeated in the future.

2. Days Operating Cash and Investments on Hand to Fund Annual Cash Expenses

Operating Cash and Investments
______________________________
Cash Expenses + Capitalized Interest

This ratio calculates the days of operating cash and investments on hand to fund annual cash expenses specifically related to very liquid assets. That means it only considers operating cash and investments, not other current assets and liabilities. This number is divided by the sum of cash expenses plus capitalized interest (interest paid in cash but not expensed by the church). Once again, to find the amount of days this allows, multiply the ratio by 365.

This ratio will calculate a result that is slightly different (typically higher) than the first ratio (net asset reserves) because it does not include the impact of other current assets and liabilities.

We believe an appropriate benchmark, or goal, for this ratio, is to have 40 to 80 days of cash expenses on hand. Furthermore, a result of less than 20 days could be interpreted as a “red flag”—an indicator that your church should take action quickly to improve this ratio.

3. Available Days of Cash Flow Coverage

The last “days of cash” ratio represents the number of days of operations (including making scheduled debt payments) available when calculated from the sum of operating cash flow. This number comes from the statement of cash flows, operating cash and investments on hand at the beginning of the year, and the amount available from the operating line of credit. In other words, if your church used all of the cash generated from operations, all available cash and investments on hand at the beginning of the year, and your available line of credit, how many days will you be able to operate on these sources of cash? This ratio represents your maximum level of reserves, and should always be the highest of the three “days” ratios.

4. Liquidity Ratio

Operating Cash and Investments
_________________________________________
Current Liabilities – Building Fund Current Liabilities –
Deferred Revenue – Short-Term Construction Line of Credit

The liquidity ratio measures how operating cash and investments are able to cover current operating liabilities, which exclude current building fund liabilities. (These typically have a separate source of cash from restricted revenues or budgets.) This ratio will tell the reader how many times actual operating liabilities can be funded from operating reserves.

A low result may indicate that the church is keeping fewer liquid reserves and is less likely to be able to handle unexpected operating expenses, events, or new opportunities that may come along.

5. Net Cash Availability

Total Cash and Investments – Adjusted Current Liabilities (Current Liabilities Excluding
_____________________________________________________
Amounts Borrowed on a Construction Line of Credit) – Temporarily Restricted Net Assets

The fifth and final cash flow ratio is actually a measure, because it is the sum of total cash and investments less certain amounts the church may owe or be required to spend for specific purposes due to donor restrictions. This measurement calculates the amount of cash available for other uses after the church has satisfied its adjusted current liabilities and set aside appropriate funds for temporarily restricted projects resulting from gifts given by donors who have restricted their use. Amounts borrowed on a construction line of credit are also excluded, as they will ultimately be refinanced with the debt and paid over time.

The statement of financial position answers the question, “How much cash do we have?” but it doesn’t answer the question, “Whose cash is it and how much of it can we spend?” The answers to those questions are typically very different. Therefore, this is one of the most important measures provided to your church leadership.

We believe the minimum benchmark for this number is at least one month’s worth of cash expenses. Any positive amount less than this is in the warning range. Any negative amount indicates that the church is borrowing from temporarily restricted funds and could be interpreted as a red flag, a warning that corrective action is needed.

Monitoring Your Church’s Financial Health

Measuring and monitoring cash flow 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 five ratios and measures outlined above provide a good start for monitoring cash flow and reserves.

CapinCrouse also offers the Church Financial Health Index™ for churches that do not have the time or capability to develop key financial metrics and indicators. More information about this online dashboard is available at www.capincrouse.com/churchhealth.
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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Church and buildings in a Christmas scene.
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May All Your Church Christmas Services Be Merry … and Legal

Songs you can sing without the Grinch showing up with his team of lawyers.

The Editors

Could your church be sued for belting out “Angels We Have Heard on High” this Christmas season? No—unless the specific arrangement you’re singing is copyrighted.

You’ll be pleased as Christmas punch to know that many of your favorite Christmas songs are in the “public domain”—meaning that no one holds the copyright to them.

The Christian Copyright Solutions site explains: “If a song is in the public domain, you can make any changes you want to it, including changing lyrics, or adding a verse or chorus. You can also set new music to existing public domain lyrics.”
More on Copyright Law

To make sure your worship complies with copyright law, see “Understanding Worship Music Copyright Law” and “Q&A: Did My Church Infringe on Copyright When Using YouTube Videos in a Livestream Service?” And then dig deep into all your copyright questions and concerns with our book Essential Guide to Copyright Law for Churches.

Along with “Angels We Have Heard on High,” Christian Copyright Solutions also lists around three dozen other public domain Christmas songs, including:
  • Come All Ye Faithful
  • Away in a Manger
  • Come O Come Emmanuel
  • Little Town of Bethlehem
  • Go Tell It on the Mountain
  • Silent Night
  • Hark the Herald Angels Sing
  • The First Noel
  • Joy to the World
  • We Wish You a Merry Christmas

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Why Church Employees Should Review Their W-4 Forms Annually

December is a great time for church employees to review their W-4 forms to ensure proper tax withholding. Changes in income, dependents, or expenses can impact tax liability, making updates essential.

Richard R. Hammar, Attorney, CPA
Bio

Last Reviewed: January 29, 2025

December is a good time to check with all nonminister church employees to see if they need to file a new W-4 form with the church.

The W-4 form is used by employees to report withholding allowances. This information will determine how much income tax the church withholds. The important point is this:W-4 forms often become obsolete because of changes in an employee’s circumstances, but the employee fails to submit a new form to the church. This can result in withholding that is significantly above or below the actual tax liability.

Here are some reasons why an employee’s W-4 may need to be updated:

the birth of a child
a pay raise
a divorce
significant medical expenses. voluntary withholding of their taxes.

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.
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Treating Ministers as Non-Ministers for Social Security

How to handle it when a church staffers asks to begin contributing into Social Security.

Richard R. Hammar, Attorney, CPA
Bio

Last Reviewed: February 4, 2025

Q: We have a ministerial staff member who opted out of self-employment taxes many years ago, and now wants to begin contributing to Social Security so that he will have retirement and Medicare benefits. His idea is that if we treat him as a nonministerial employee, he and the church will begin paying Social Security and Medicare taxes on his salary. Is this possible?

No. Section 3121(b)(8)(A) of the tax code specifies that for Social Security, a duly ordained, commissioned, or licensed minister is treated as self-employed with respect to services performed in the exercise of ministry (with the exception of some chaplains). This is true even if a minister is an employee for income tax purposes. As a result, a minister reports and pays Social Security taxes as a self-employed person (and not as an employee) with respect to services performed in the exercise of ministry. Some churches withhold the employee’s share of Social Security and Medicare taxes from ministers’ compensation and then pay the employer’s share. This may be due to unfamiliarity with the law, or for ulterior purposes such as padding an exempt minister’s Social Security contributions. In either case, this is incorrect reporting.

A minister’s status for Social Security is not a matter of election or choice. It is a matter of federal law. As noted, the tax code specifies that ministers are self-employed for Social Security with regard to compensation received for performing ministerial services.

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Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.
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Can Bankruptcy Courts Recover Charitable Contributions?

Understand how bankruptcy laws affect charitable contributions and protect churches from financial liabilities.

Richard R. Hammar, Attorney, CPA
Bio

Last Reviewed: January 24, 2025

When an individual files for bankruptcy, a bankruptcy trustee is tasked with ensuring creditors are repaid as much as possible. This process often involves identifying assets or donations that can be recovered, including tithes and church contributions, depending on the circumstances.

When a Bankrupt Giver’s Donation is Jeopardized

Section 548(a) of the bankruptcy code grants a bankruptcy trustee authority to recover (“avoid”) two types of “fraudulent transfers” made by bankrupt debtors within a year of filing for bankruptcy:

1. Intent to Defraud

Under Section 548(a)(1), a trustee can recover transfers if:
  • The transfer was made with the intent to hinder, delay, or defraud creditors.
  • These transfers include voluntary or involuntary transactions within one year of filing for bankruptcy.

2. Transfers for Less Than Reasonably Equivalent Value

Under Section 548(a)(2), a trustee can recover transfers if:
  • The transfer involved cash or property exchanged for less than its equivalent value.
  • The debtor was insolvent at the time or became insolvent as a result of the transfer.

The Impact on Charitable Contributions

Many trustees have attempted to recover donations made by bankrupt individuals to churches, arguing these donations are for less than “reasonably equivalent value.” Courts have often agreed, ruling that churches must return these funds. This created financial hardships for churches, as the donations were often spent by the time recovery was demanded.

The Religious Freedom and Charitable Donation Protection Act

To protect churches and charities, Congress passed the Religious Freedom and Charitable Donation Protection Act. This amendment to Section 548(a)(2) shields qualified charitable contributions from recovery by bankruptcy trustees if:
  • The contribution does not exceed 15% of the debtor’s gross annual income.
  • The contribution exceeds 15% but is consistent with the debtor’s past giving practices.

Key Limitations

This Act does not protect donations made with the intent to defraud creditors. Trustees can still recover contributions if fraudulent intent is proven.

Contributions Exceeding 15% of Annual Income

A significant question arises when donations exceed 15% of annual income. A federal appeals court ruled that if contributions exceed this threshold, all contributions, including the first 15%, may be recoverable. This precedent highlights the importance of understanding the potential risks for both donors and churches. Read more about bankruptcy laws here.

Protecting Churches and Donors

Churches should be aware of the potential implications of receiving large contributions from members who may face financial difficulties. Advising donors to consult with financial advisors can mitigate risks for all parties involved.

FAQs About Charitable Contributions and Bankruptcy

1. Are all charitable contributions protected from recovery by bankruptcy trustees?

No, only contributions that meet the criteria under the Religious Freedom and Charitable Donation Protection Act are protected.

2. What happens if a donor’s contributions exceed 15% of their income?

Contributions exceeding 15% of gross annual income may be recoverable by a bankruptcy trustee, including the first 15%.

3. Can churches keep donations made with fraudulent intent?

No, donations made with an intent to defraud creditors are not protected under the Act and can be recovered by trustees.

4. How can churches protect themselves from financial liability?

Churches can establish clear policies and advise donors to consult financial advisors before making significant contributions.

For more detailed legal guidance, refer to the IRS guidelines on charitable contributions.
Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.
Image: Dilok Klaisataporn | Getty

7 Common Financial Control Problems

Address these common issues before trouble surfaces.

Vonna Laue, CPA
Bio

When it comes to maintaining financial integrity, churches of all sizes and settings often run into similar control issues. By addressing seven common problem areas now, leaders have a far greater chance of thwarting significant problems later:

1. Duties aren’t separated

Every church must make certain that at least two of the following three specific duties are split between at least two unrelated persons:
  • Authorizing transactions
  • Recording transactions
  • The custody of assets

Without separation, you’ve provided someone with access to the funds and access to the information systems. That person can manipulate information and cover up changes with little fear of detection.

2. Dated job descriptions and unmonitored workload

To keep job descriptions from becoming dated, review everyone’s duties and responsibilities regularly. Without this review, staff members may take on additional work that should be separated to unrelated persons, or they may take on more work than they can handle and properly oversee.

Also, a review of work-related duties can help make certain that someone isn’t overloaded to the point of potentially trying to justify or rationalize an act of embezzlement.

On a related note, churches often turn to volunteers. Make certain these volunteers are fully supervised and aren’t offended by close supervision and probing questions. Explain to them the importance of verifying their work to protect them and the church.

3. Unqualified personnel

Churches must steer clear of hiring or keeping unqualified individuals in finance-related roles. Sometimes a church hires out of pity because someone has been out of work a while; or a church might realize the person isn’t the right fit but doesn’t have the heart to let that person go. Neither scenario leads to good outcomes.

It’s also important to note the unique rules and laws that apply to church finances. It’s not the business world. It’s critical for churches to hire people familiar with church-specific rules and laws. You could also hire solid people not from a church finance background, but it’s essential to provide specific training that gets them up to speed about the ins and outs of church finance.

Speaking of training, churches may feel they simply don’t have the budget for such training. Thanks to the resources available online, many organizations offer free or low-cost webinars that can provide valuable training.*

Lastly, make certain to review the compensation of the personnel handling church finances. Low pay can serve as a trigger for rationalizing a fraudulent act, so it makes sense to periodically make certain the compensation for these leaders appears fair.

4. Accounting procedures manual

This should be comprehensive and regularly updated. If someone can’t come in and do the job after reading this manual, a problem exists. If only one person understands how everything works, that’s a potential vulnerability.

5. Limited time and staff

When a church staff feels overworked, there’s a temptation to cut corners on processes and procedures. When your church finds itself in this type of situation, it’s critical to emphasize to the staff the importance of maintaining the processes and procedures for the good of the ministry and their reputations.

6. Lack of monitoring

This is simply making certain your church has internal controls in place and follows them. It’s smart to periodically test the system to make sure it works like it should.

7. Trust

Church leaders often express their desire to extend “trust” on financial matters because it’s a church environment. As a ministry leader once expressed to me, trust isn’t an internal control. Of the three points that make up the “fraud triangle”—incentive, rationalization, and opportunity—churches can most control opportunity. That means leaders must trust, but verify.

This post is adapted from a presentation Laue gave to the Mile High Chapter of The Church Network (NACBA).
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/ BillionPhotos.com

Church Violence Statistics: 3 Steps to Keep Criminals from Targeting Your Church

Discover key church violence statistics and three essential steps to keep your church safe from crime.

Matthew Branaugh, Attorney and Editor
Bio

Last Reviewed: February 10, 2025

When it comes to crime prevention, law enforcement professionals often say, “If a property looks like a target for criminals, it is.” Church violence statistics highlight the growing need for churches to implement crime prevention measures that ensure their properties remain safe.

According to FBI crime data, religious institutions are not immune to threats, with incidents of vandalism, theft, and violent attacks occurring nationwide. Carl Chinn’s report on violence against churches and faith-based organizations reinforces the importance of proactive security planning.

Church leaders must devote time, energy, and resources to crime prevention efforts. While budget and volunteer constraints may pose challenges, implementing these three key steps can significantly enhance security.

1. Appearances Matter: Crime Prevention Through Environmental Design

One of the most effective ways to deter criminals is through Crime Prevention Through Environmental Design (CPTED). These strategies focus on making church properties less appealing to criminals.

Key Areas to Address:
  • Maintain landscaping by mowing lawns, trimming trees and bushes, and pulling weeds.
  • Repair cracked sidewalks, broken windows, and faded or peeling paint.
  • Ensure the parking lot is well-lit and free of obstructions.
  • Install motion sensor lights around entrances and secluded areas.

Carl Chinn, a church security expert, recalls visiting a church with a high rate of robberies. “From a block away, I saw the problem—overgrown grass, cracked pavement, and dimly lit entrances,” Chinn says. “A neglected property signals to criminals that no one is watching.”

By making simple upgrades, churches can improve security without incurring major costs.

2. Relationships Matter: Strengthen Community and Law Enforcement Connections

Establishing strong relationships with community members and law enforcement can play a crucial role in crime prevention. Churches should regularly communicate with:

Church Members and Volunteers:
  • Encourage staff and members to report suspicious activities.
  • Hold security meetings to discuss recent incidents and prevention strategies.

Other Churches in the Community:
  • Collaborate with neighboring churches to share crime reports and security tips.
  • Establish a network to notify each other about potential threats.

Local Law Enforcement:
  • Provide police with church schedules to improve patrol coordination.
  • Request increased patrols during off-hours and high-traffic events.
  • Invite officers to use the church parking lot for observation posts.

According to Tina Lewis Rowe, a former U.S. Marshal and law enforcement instructor, direct engagement with police is key. “Random calls to the station are ineffective. Instead, reach out to the ranking officer for your area and request regular safety check-ins,” Rowe advises.

3. Common Sense Matters: Control Access to Church Facilities

Balancing an open, welcoming environment with security measures is a challenge for many churches. However, basic access control strategies can prevent criminal activity.

Best Practices for Securing Church Buildings:
  • Limit entry points to a single main entrance during services and office hours.
  • Keep side and back doors locked except during emergencies.
  • Regularly inspect doors and windows to ensure they remain secured.
  • Encourage congregants to report unlocked or propped-open doors.

For individuals with accessibility needs, designated parking spots near the main entrance can reduce the necessity of using side doors. Regular patrols by staff and volunteers during services and throughout the week can further enhance security.

Understanding Church Violence Statistics

Violence in churches has been a growing concern in recent years. Reports show that incidents of church-related violence have risen, with factors such as domestic disputes, robbery attempts, and ideological conflicts contributing to the numbers.

Key Statistics on Church Violence:
  • Between 1999 and 2023, over 2,000 violent incidents occurred at faith-based organizations in the U.S. (Faith-Based Security Network).
  • 40% of church violence incidents involve personal disputes that escalate on church property.
  • 27% of church attacks are robbery-related.
  • Fewer than 10% of churches have formal security plans in place to respond to violent threats.

Given these statistics, churches must take proactive steps to protect their congregations and staff.

Frequently Asked Questions (FAQs)

How common is violence in churches?

While churches are generally safe places, statistics show an increase in violent incidents, often related to domestic disputes, robberies, or ideological motives.

What are the best ways to prevent crime at church?

Maintaining a well-kept property, strengthening relationships with law enforcement, and limiting access points are some of the most effective crime prevention strategies.

How can churches improve their security without a large budget?

Simple changes such as installing motion sensor lights, securing entrances, and increasing community awareness can enhance security with minimal costs.

Should churches have armed security?

Each church must assess its unique risks. Some churches choose armed security, while others focus on non-armed security teams and emergency response planning.

For additional security resources, visit Department of Homeland Security’s Hometown Security Initiative.
Matthew Branaugh is an attorney and editor for Church Law & Tax.
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