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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.
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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.
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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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4 Ingredients for an Effective Accounting System

Don’t let sloppy or poor accounting practices compromise your church’s finances.

Vonna Laue, CPA
Bio

Churches that don’t have effective accounting systems may compromise their church’s finances. Don’t let that happen at your church. Here are four essential ingredients that make up any solid system:

1. Accuracy. Decisions are only as effective as the information used to make them. Oftentimes, I hear leaders say they don’t have the time to review and double-check information. That’s not a good excuse. In order to avoid mistakes, and sometimes costly mistakes, you need build in time to reconcile accounts, create reports, and double-check reports.

2. Timeliness. Late information is the same as no information. Without information in hand, how can leaders in your church make good decisions? Plus: The more time that passes, the easier it is for someone to make an error or lose an important piece of information. Even worse, auditors of your church’s finances would consider consistently late reports a red flag. Why? It signals potential efforts to cover up financial malfeasance.

3. Efficiency. Because church staffs often are stretched, their time needs to be used well. This means the accounting system needs to be understandable and accessible. Create easy-to-understand department labels (or “classes” or “funds,” depending on the software), and a simple format for the chart of account numbers.

4. Support. The more your administrative role is seen as a support to the ministry roles, the better information and cooperation you will receive. Build rapport by offering your help whenever members of your finance team have questions or concerns about how to use the church’s accounting system. One church CFO I know does this regularly, and it opens up communication that later leads to questions ahead of potential problems, rather than after something has occurred.

For more help with managing your church’s finances, see the downloadable resource Internal Controls for Church Finances.
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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Four Fiduciary Duties of Church Boards

Officers and directors must provide careful financial oversight—or else face consequences.

Richard R. Hammar, Attorney, CPA
Bio

Last Reviewed: July 24, 2025

Fiduciary Duties in Church Leadership: What They Are and Why They Matter

Why It Matters

Many church officers and directors—often board or finance committee members—don’t fully understand the concept of fiduciary duty. This misunderstanding can lead to legal exposure and financial loss for both the church and its leaders.

What’s at Stake

Failing to meet fiduciary obligations can result in:
  • Significant financial damage to the church
  • Personal legal liability for board members
  • Erosion of trust within the congregation

The Purpose of This Guide

This article explains:
  • What fiduciary duties are and where they come from
  • How they apply to church leaders
  • Best practices based on nonprofit law
  • Legal cases that show real-world consequences
  • How federal tax laws shape fiduciary responsibility

Understanding Fiduciary Duties

The term fiduciary comes from the Latin fiduciarius, meaning something held in trust. Legally, a fiduciary is someone entrusted with managing another’s money, property, or affairs with honesty and care.

“A fiduciary is someone who acts in a role of trust for the benefit of another, implying great confidence and requiring good faith.”
— In re Benites, 2012 WL 4793469 (N.D. Tex. 2012)

Courts have affirmed that nonprofit board members are fiduciaries. They are expected to exercise good judgment and act in the best interest of the organization they serve.

“Officers and directors are bound to the exercise of the utmost good faith, loyalty, and honesty.”
— Summers v. Cherokee Children & Family Services, Inc., 112 S.W.3d 486 (Tenn. App. 2002)

The U.S. Supreme Court emphasized:

“To say that a man is a fiduciary only begins analysis.”
— SEC v. Chenery Corp., 318 U.S. 80 (1942)

The Four Fiduciary Duties

Nonprofit board members typically have four main fiduciary duties:
  1. Due Care
  2. Prudent Investing
  3. Loyalty
  4. Obedience

Each will be examined in detail.

Duty of Due Care

What It Means

Church officers and directors must act with care, diligence, and attention. They are expected to:
  • Stay informed about the church’s operations
  • Regularly attend meetings
  • Evaluate financial and legal decisions thoughtfully

“Total abdication of [a director’s] supervisory role is improper.”
— Stern v. Lucy Webb Hayes National Training School, 381 F. Supp. 1003 (D.D.C. 1974)

Stern v. Lucy Webb Hayes: A board failed to meet for over a decade. The court ruled this was a breach of due care.

PTL Bankruptcy Case: Jim Bakker was found to have breached his duty by:
  • Failing to inform the board of financial issues
  • Failing to supervise spending
  • Engaging in self-dealing

“Bakker exercised a great deal of control over his board … this was gross mismanagement.”

Best Practices for Church Boards
  • Read and understand financial reports
  • Ask questions and demand transparency
  • Attend board meetings consistently
  • Supervise delegated tasks
  • Prevent conflicts of interest

Learn from For-Profit Boards

Many corporate cases offer valuable guidance:
  • Jurista v. Amerinox: Boards must have systems to monitor decisions.
  • Francis v. United Jersey Bank: Directors can’t claim ignorance.
  • Barr v. Wackman: A board is not a symbolic entity—it must function.

Practical Safeguards

To meet the duty of due care:
  1. Check your state nonprofit laws.
  2. Follow any investment restrictions in bylaws or meeting minutes.
  3. Use an investment committee with financial experts.
  4. Create and follow a formal investment policy.
  5. Avoid risky or speculative investments.
  6. Ensure regular review of church investments.
  7. Avoid conflicts of interest.
  8. Be cautious of scams, particularly online.
  9. Diversify investments.
  10. Treat donated funds with added moral and legal care.

Prudent Investor Rule

How It Applies

The duty of due care includes managing investments wisely. Courts understand that not every investment will succeed. The key question is: Did the board act as a prudent person would?

“Absent abuse of discretion, business judgment will be respected.”

Key Guidelines
  • Document investment decisions
  • Seek expert advice when necessary
  • Diversify to reduce risk
  • Avoid conflicts of interest
  • Reassess investments regularly

Common Scams to Avoid (per SEC)
  • Pyramid schemes
  • Ponzi schemes
  • Nigerian investment scams
  • Prime bank scams

Warning signs include:
  • Unrealistic returns
  • Secretive or exclusive opportunities
  • Confusing jargon
  • Guaranteed results

Key point: Do not rely on “experts” associated with the investment. Use independent, trusted advisors.

Duty of Loyalty

What It Means

This duty requires acting in the church’s best interest, not personal interest.

Examples of Loyalty Violations:
  • Self-dealing in church contracts
  • Usurping opportunities intended for the church
  • Failing to disclose conflicts of interest

“The rule demands undivided and unselfish loyalty to the corporation.”
— Guth v. Loft, Inc., 5 A.2d 503 (Del. 1939)

Real-World Example: Jack’s Secret Church
  • Jack, a church officer, secretly formed a new church
  • He transferred church property without disclosure
  • The court ruled he breached his fiduciary duty of loyalty

Lessons for Church Boards
  • Disclose conflicts of interest fully
  • Recuse yourself from votes where you have a personal stake
  • Don’t personally benefit from church opportunities

Business Case Examples
  • Jurista v. Amerinox: Conflicts of interest void business judgment protection
  • MF Global Holdings: Loyalty includes avoiding even the appearance of personal gain

Duty of Obedience

What It Means

Board members must ensure the church operates within:
  • Its mission and purpose
  • Its governing documents (e.g., bylaws, articles)
  • State and federal laws

“The duty of obedience requires fidelity to the mission.”
— Manhattan Eye, Ear & Throat Hosp. v. Spitzer, 715 N.Y.S.2d 575 (N.Y. Sup. 1999)

Example

A Texas court ruled directors must not act outside the powers granted by law or the church’s charter.
— Batey v. Droluk, 2014 WL 1408115 (Tex. App. 2014)

Federal Tax Law Impacts

Excess Benefit Transactions

Section 4958 of the tax code allows the IRS to impose excise taxes for:
  • Unreasonable compensation
  • Improper benefits to insiders (e.g., board members, relatives)

Key Definitions
  • Disqualified person: Typically, someone with substantial influence over the organization
  • Excess benefit: Anything given in excess of fair market value for services

Consequences
  • 25% excise tax (plus 200% if not corrected)
  • 10% tax on managers who approve such benefits
  • Risk to tax-exempt status

Compensation is presumed reasonable if approved by an independent body using comparability data.

Additional Tax Triggers
  • Failure to report payroll taxes (IRC § 6672)
  • Providing personal benefits to board members or staff

Key point: Tax law is increasingly used to enforce fiduciary standards.

The Uniform Prudent Management of Institutional Funds Act (UPMIFA)

UPMIFA, adopted in 49 states and the District of Columbia (only Pennsylvania has not adopted it), sets standards for:
  • Prudent investing
  • Risk diversification
  • Minimizing costs
  • Acting in good faith

It applies to nearly all church funds, not just trusts or endowments.

Key Responsibilities Under UPMIFA
  • Align investment decisions with the church’s mission
  • Diversify unless special circumstances warrant otherwise
  • Monitor and evaluate assets regularly
  • Use advisors when appropriate
  • Disclose material information to other board members

Protecting Your Leaders—and Your Church

Church officers and directors are often volunteers. Still, they shoulder serious responsibilities. A failure to understand or fulfill fiduciary duties can:
  • Jeopardize the church’s legal standing
  • Invite lawsuits or IRS scrutiny
  • Damage morale and trust

Best Practices
  • Provide regular training on fiduciary responsibilities
  • Use experts (legal, financial) to advise on high-risk matters
  • Review and update policies regularly
  • Document decisions and rationales clearly
  • Audit financials and conflicts of interest

“A director is not an ornament. The law has no place for dummy directors.”
— Francis v. United Jersey Bank, 432 A.2d 814 (N.J. 1981)

Final Word: Invest in Education

Educating board members about fiduciary duties isn’t optional—it’s essential. Every church deserves leaders who understand:
  • The weight of their responsibilities
  • The real risks of inaction or oversight
  • The legal and moral expectations tied to their role

By investing in your leaders, you’re investing in the church’s future.

“No one is compelled to be a director, but once the office is assumed, it carries with it the light burden of active, diligent, and single-eyed service.”
— People v. Marcus, 261 N.Y. 268 (1933)

We’ve used a combination of AI and human review to make this content easier to read and understand.
Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

15 All-too-Common Church Facility Problems

Set a high standard for maintenance, safety, and overall look of your building.

Chuck Lawless

I know the church is not a building. That is not to say, though, that the building is unimportant. A building says something about the congregation that gathers there; so, we need to pay attention to our facilities.

Listed here are 15 facility issues I and my consulting teams have seen recurrently in churches, including established churches and church plants.

1. No obvious main entrance. We have seen this problem in churches with large facilities as well as church plants that meet in rented space. The building has several doors, each that enters the facility in a different location. Only one leads to the main entrance, but guests must guess which door that is.

2. An unmarked (or unattended) welcome center. No signage indicates the welcome center, and no greeters direct people there. Brochures and sermon CDs might be available there, but sometimes no one is present to distribute them. Such a location is an information kiosk—not a welcome center.

3. Paper signage. Think about what this communicates: handwritten (or poorly done computer-generated) room signs on a piece of paper taped to a wall. I realize emergency situations necessitate a “quick fix,” but this kind of signage implies a lack of attention to excellence.

4. Old information on screens or bulletin boards. I’ve seen bulletin board announcements for events that took place six months ago. Even in churches with computerized announcements, I’ve seen outdated information flashed on the screen.

5. Unsecured children’s area. Our “secret shoppers” often report having complete access to children’s areas. In some cases, no security system is in place to protect children. In other cases where security does exist, unmonitored outside doors still allow entrance to this area.

6. Windowless doors in the children’s area. Windows in doors cannot eliminate the possibility of child abuse in a church, but they are at least a deterrent. Solid doors are an indication the church has not taken enough steps to protect their children.

7. “Big people” furniture in children’s rooms. Perhaps you’ve seen a children’s room where the table is lowered a bit, but the chairs are still adult chairs. The furnishings (and often the teaching method in the class) say to a child, “Your job is to act and learn like an adult in this room.”

8. Clutter. The list is long: old literature on tables, “donated” toys no one wants, leftover craft supplies, ugly upright pianos, last week’s bulletins, unwashed dishes, drama costumes. … Somehow the church facility has become a gathering place for junk.

9. Open outlets in preschool rooms. A preschool room electrical outlet without a cover insert is an invitation to trouble. Toddlers typically have not learned not to stick something in the outlet.

10. Dirty carpet. This one surprises me, simply because cleaning a carpet is not that difficult. It may cost a few dollars, but not cleaning the carpet says, “We’re not that concerned about the look of God’s house.”

11. Odors. Again, the list is long: the musty smell of water damage, the hangover of dirty diapers in the nursery or spoiled food in the kitchen, an unfixed clogged toilet. … What’s hard to believe is that people who attend regularly apparently do not notice the smells.

12. Unstocked bathrooms. Sometimes I feel like I’m traveling on a mission trip when I enter a church restroom—that is, I’m out of luck if I didn’t bring my own toilet paper, soap, and towels. Those issues are only magnified when the bathroom is dirty.

13. Poor lighting. Dimming the lighting might be an effective device to focus worship, but a service is hardly facilitated if members strain to read their Bibles. I’m especially sensitive to this one as I get older.

14. Few garbage cans. Church buildings would be cleaner if our buildings included nicely designed, strategically placed garbage cans inside the building. There is a reason garbage cans in bathrooms and kitchens are often overflowing.

15. Faded paint. It’s amazing what a fresh coat of paint will do to a room. It’s also amazing how long some churches wait before adding that fresh coat.

This post was adapted from an article that first appeared at ThomRainer.com on August 19, 2014.

Chuck Lawless currently serves as Professor of Evangelism and Missions and Dean of Graduate Studies at Southeastern Seminary. You can connect with Dr. Lawless on both Twitter and Facebook .
Image: AdobeStock/Vitalii Vodolazskyi

Internal Audit Tips for Churches: A Simple Guide

Key tips to simplify internal audits for churches and ensure a smooth process.

Marian V. Liautaud
Bio

Last Reviewed: January 26, 2025

Internal audits can help churches maintain financial integrity and transparency. Here are some key tips to make the process smoother and more effective.

1. Determine If an Audit Is the Right Fit

Before committing to an audit, assess if it is the best service for your church. In some cases, funds may be better allocated toward a financial review or consulting arrangement.

2. Build a Strong Relationship with Your Auditor

Your auditor should be a strategic partner with expertise in nonprofits and ministries. Establish a good working relationship to maximize the benefits of their services.

3. Be Involved in Major Decisions

Stay engaged with major decisions within the church and consider their accounting implications. Proactive involvement ensures accurate records and smoother audits.

4. Implement a Monthly Closing Process

A regular monthly closing process improves accounting accuracy and ensures you are well-prepared for audits throughout the year.

5. Communicate Audit Timing and Requirements

Discuss the audit timeline, potential issues, and requirements with your staff. Keeping everyone informed helps prevent misunderstandings and delays.

6. Set Clear Expectations with Your Auditor

Be upfront about timelines and expectations. Clear communication helps your auditor understand your needs and ensures an efficient process.

7. Prepare Thoroughly for Fieldwork

Allow ample time for preparation and have all necessary materials ready at the start of the fieldwork. Avoid preparing items during the audit, as this can cause delays.

8. Ask Questions Throughout the Process

If anything is unclear, ask your auditor for clarification. Open communication ensures you stay informed and reduces errors.

9. Be Available During the Audit

Availability is crucial during fieldwork and follow-up. Schedule time to address the auditor’s questions promptly, as unavailability can significantly slow the process.

10. Remember the Auditor’s Role

Keep in mind that you hired the auditor to help. They are there to support your church and ensure financial processes are in order.

FAQs
  • What is the difference between an audit and a financial review? An audit provides a comprehensive evaluation of financial records, while a financial review is less detailed and focuses on limited assurance.
  • How can I prepare for an internal audit? Implement a monthly closing process, communicate timelines with your staff, and ensure all records are organized before fieldwork begins.
  • Why is open communication with the auditor important? Clear communication ensures misunderstandings are avoided and the process runs smoothly.
  • How can I ensure the audit process is efficient? Prepare thoroughly, set clear expectations, and be available to address questions promptly during and after fieldwork.

For more information on financial management in churches, visit IRS Guidelines for Churches and Government Accountability Office.
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