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How Certified Fraud Examiners Help Churches Prevent and Investigate Fraud

Certified fraud examiners offer churches expertise in preventing, detecting, and investigating fraud to safeguard their resources.

Dan Busby
Bio

Last Reviewed: January 26, 2025

Fraud in churches can lead to severe financial losses, broken trust, and reputational damage. Certified fraud examiners (CFEs) play a vital role in preventing and investigating these issues. With their specialized training, CFEs bring objectivity and expertise to ensure financial accountability within churches.

Key Takeaways:
  • CFEs specialize in fraud prevention, detection, and deterrence.
  • They provide objective investigations free from organizational bias.
  • Fraud investigations often reveal underlying internal control issues that need addressing.

What makes certified fraud examiners indispensable for churches? Their expertise lies in identifying fraud risks and conducting unbiased investigations to protect church resources and integrity.

What Is a Certified Fraud Examiner?

A certified fraud examiner (CFE) is a professional trained in fraud prevention, detection, and investigation. They earn their credentials through the Association of Certified Fraud Examiners (acfe.com), undergoing rigorous exams in four areas:
  • Fraud prevention and deterrence
  • Fraudulent financial transactions
  • Fraud investigation
  • Legal elements of fraud

To maintain their credentials, CFEs complete at least 20 hours of Continuing Professional Education (CPE) annually, ensuring their skills remain current.

The Advantages of Using a CFE

Churches benefit from the objectivity and expertise of CFEs during investigations. Unlike internal teams, CFEs have no personal connections, ensuring impartiality. Here’s how they help:
  • Unbiased Investigations: CFEs approach fraud allegations without preconceived notions, preventing “witch hunts.”
  • Legal Preparedness: CFEs ensure evidence is handled professionally, critical for court cases.
  • Fraud Prevention: CFEs assess and recommend internal control improvements to reduce fraud risks.

Challenges of Using a CFE

Despite their benefits, churches may face challenges when engaging CFEs:
  • Cost: Professional fraud investigations are comprehensive and can be expensive. Churches must weigh the potential financial recovery against the cost of hiring a CFE.
  • Cultural Barriers: Bringing in an external investigator may feel uncomfortable for some congregations. Churches should balance trust with accountability.
  • Organizational Responsibility: CFEs may uncover internal control issues that contributed to fraud, requiring churches to address systemic flaws.

How CFEs Protect Churches

Fraud can devastate a church’s finances and reputation. CFEs assist by:
  • Uncovering fraudulent activities and mitigating losses.
  • Implementing controls to safeguard offerings and donations.
  • Providing evidence for legal proceedings against perpetrators.

FAQs
  • What qualifications do certified fraud examiners have? CFEs undergo training through the Association of Certified Fraud Examiners and must pass exams in fraud prevention, detection, investigation, and legal elements.
  • How can CFEs help prevent fraud in churches? They evaluate internal controls, recommend safeguards, and train staff to identify red flags and fraud risks.
  • What is the cost of hiring a CFE? Costs vary depending on the scope of the investigation, but they are justified when significant financial losses are at stake or legal proceedings are anticipated.
  • Why should churches hire an external investigator instead of handling fraud internally? External investigators provide objectivity, professionalism, and expertise that may be lacking within the church’s staff or board members.

Conclusion

Certified fraud examiners play a crucial role in protecting churches from financial misconduct. By bringing expertise, objectivity, and preventive measures, CFEs help churches secure their resources and maintain trust with their congregations.
Dan Busby is president of the Evangelical Council for Financial Accountability.
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Rules for Editing Church Bylaws

Can we correct grammatical errors without calling a meeting to amend our bylaws?

Richard R. Hammar, Attorney, CPA
Bio

Q: Is it possible to correct spelling and grammatical errors in our church’s bylaws without going to the trouble of amending the bylaws at an annual business meeting?

This is a common question. Spelling and grammatical errors often result from the adoption of bylaws without a thorough review and editing by a bylaws committee. Once bylaws have been formally adopted, they cannot be “edited” without going through the formal process of amendment, unless the bylaws themselves provide that they may be edited to correct obvious errors. This is not a bad idea. However, you need to be very careful to define precisely what can be edited. If the scope of editing is not clearly delineated, then whoever is tasked with the responsibility of doing the editing (i.e., a bylaws committee, or the church board) may go too far and amend substantive provisions.

Here is an example of a bylaw provision authorizing a bylaws committee (any other board or committee can be substituted) to make non-substantive bylaw changes without a formal amendment:

A bylaws committee shall be appointed by the board from the membership of the church. Members should be selected on the basis of their familiarity with the bylaws and their editorial skills. The bylaws committee shall have the power to adopt such revisions to these bylaws as are, in its judgment, non-substantive modifications or clarifications, reorganization or renumbering, or revisions made necessary because of punctuation, spelling, or other errors of grammar or expression. The action to revise may be taken by motion acted upon in the same manner as any other motion before the committee. Such revisions shall be effective immediately and shall be permanent subject to revocation by the membership at any duly called meeting.

Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.
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Amending a Minister’s Housing Allowance

Can we increase our minister’s housing allowance during the year?

Richard R. Hammar, Attorney, CPA
Bio

Last Reviewed: May 30, 2024

Q: Our minister would like the church to increase his housing allowance due to the fact that he will be incurring more housing expenses than expected this year. Can our church board amend the allowance for the rest of the year, or must he wait until next year?

Ministers do not pay federal income tax on the amount of their compensation designated in advance by their employing church as a “housing allowance.”

But there are limits.

For ministers who own or rent their home, a housing allowance is nontaxable only to the extent that it represents compensation for ministerial services, is used to pay housing expenses, and does not exceed the fair rental value of the home (furnished, plus utilities).

Sometimes ministers incur more housing expenses than they anticipated during the year. This may mean that their housing allowance is not enough to cover all of their housing expenses. Possible reasons for why this happens include unforeseen housing expenses or the purchase of a new home.

Learn more about parsonage and housing allowances in chapter 6 of Church Law & Tax’s annual Church & Clergy Tax Guide.

Whatever the reason, if a minister’s housing expenses exceed the church-designated housing allowance for the year, but still do not exceed the fair rental value of the home (furnished, plus utilities), then the minister may not be receiving the full value of this important tax benefit.

Amending an allowance the right way

To help your minister facing a situation like this, your church can amend the housing allowance. When your church does this, it must pay attention to the following rules:

  • Proper authorization. Be sure the amended housing allowance is authorized by the same group (usually the church board or congregation) that designated the original housing allowance.

  • In writing. Be sure the amendment is duly recorded in the minutes of the group that approves it. The minutes should be dated, and recorded at or shortly after the meeting in which the amendment is approved.

  • Prospective application. An amended housing allowance only operates “prospectively.” That is, it takes effect on the date it is approved, through the rest of the year. It cannot apply retroactively. To illustrate, a minister’s housing expenses turn out to be $15,000 for 2024, but the housing allowance designated by the church was only $10,000. In December of 2024 the minister asks the church board to retroactively increase the housing allowance for 2024 to $15,000. This cannot be done.
Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.
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Insurance Terms Every Church Leader Should Know

The language of insurance is an important knowledge set for churches today.

The Editors
Bio

Church leaders typically encounter the following insurance terms. Here are their meanings:

Actual Cash Value

The cost of replacing damaged or destroyed property with comparable new property, minus depreciation and obsolescence. For example, 20-year-old church pews will not be replaced at current full value because of two decades of depreciation. In some instances, artistic or antique property may appreciate over time. To receive full coverage, such items must be specifically scheduled in a policy.

Appurtenant Structures

Includes additional buildings on the same property as the principal insured building. Most property insurance contracts cover appurtenant structures.

Business Personal Property (Contents)

As distinguished from personal property, business personal property includes items such as furniture and fixtures, machinery, stock, manufactured or raw goods, and personal property owned by the insured and used in the business while located within 100 feet of the premises.

Certificate of Insurance

A form that verifies a policy has been written. It is often used as proof of insurance in loan transactions and for other legal requirements.

Claim

A demand made by the insured, or the insured’s beneficiary, for payment of the benefits as provided by the policy.

Deductible

Amount of loss that the insured pays before the insurance kicks in. It includes the following types:
  • Absolute dollar amount—Amount the insured must pay before the insurance company will pay, up to the limits of the policy. The higher the absolute dollar amount, the lower the premium.
  • Time period amount—Length of time the insured must wait before any benefit payments are made by the insurance company.

Directors and Officers Liability Insurance

Insurance that protects an entity and its corporate directors and officers against claims alleging financial loss resulting from the wrongful acts or mismanagement of the corporation’s directors and officers.

Employment Practices Liability (EPLI) Insurance

A claims-made coverage for the insured’s liability exposure arising out of employment practices.

Inland Marine

A policy that lists specific pieces of property at a designated value for coverage.

Insurance to Value

The appropriate amount of insurance to cover the value of the property being insured. It affords more complete protection to the policyholder to repair/replace property after a total loss.

Ordinance or Law

Coverage that insures against losses caused by enforcement of ordinances or laws regulating construction and repair of damaged buildings. Communities often have building ordinances that require that a building that has been damaged to a specified extent (i.e. 50 percent) must be demolished and rebuilt according to current building codes, rather than simply repaired. Ordinance or Law coverage pays for items, such as the loss of the undamaged portion of the building, the cost of demolishing the undamaged portion of the building, or the increased cost of rebuilding the entire structure according to current building codes. Without Ordinance or Law coverage, such costs would not be covered by insurance.

Risk Management

Management of the pure risks to which a church might be subject. It involves analyzing all exposures to the possibility of loss and determining how to handle these exposures through practices such as avoiding the risk, retaining the risk, reducing the risk, or transferring the risk, usually by insurance.

Umbrella Policy

Coverage for losses above the limit of an underlying liability policy, such as commercial general liability, business automobile, employers’ liability, and so on. While it applies to losses over the dollar amount in the underlying policies, terms of coverage are sometimes broader than those of underlying policies.

Underwriting

The process of selecting risks for insurance and classifying them according to their degrees of insurability so that the appropriate rates may be assigned. The process also includes rejection of those risks that do not qualify.
—GuideOne, A.M. Best
The editorial team of Church Law & Tax is made up of Matthew Branaugh, attorney-at-law, and Rick Spruill, digital content manager.
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Before Your Church Hires a Maintenance Contractor

Churches often rely on outside contractors for landscaping, repairs, and maintenance. Discover essential tips for hiring qualified professionals, avoiding conflicts of interest, and ensuring responsible stewardship of church resources.

Lee A. Dean
Bio

Last Reviewed: May 8, 2025

Churches often hire people skilled in teaching, preaching, counseling, shepherding, and administration. But every church has practical needs, too—like mowing the lawn, patching a roof, or plowing the parking lot. These tasks often require hiring an outside professional.

Before doing so, church leaders must confirm that outside help is truly necessary. If it is, they should follow best practices to make the best hiring decision.

“One of our church’s high values is that we will not outsource something when we have qualified volunteers who can—and wish to—do the work. I stress the word ‘qualified,’” says Jim Boyd, director of support services for Calvary Baptist Church, Winston-Salem, North Carolina.

Ken Meines, director of facility services at Calvary Church in Grand Rapids, Michigan, agrees. He prefers to handle preventive maintenance in-house and outsource major repairs. “I usually try to troubleshoot the problem far enough to either order the part and fix it, or know which vendor to contact,” he says

Matching the Right Job to the Right Contractor

Churches often outsource services like:
  • Landscaping
  • Cleaning
  • Heating and air conditioning
  • Plumbing
  • Electrical work
  • Snow plowing

The goal is to match the project to a contractor’s true expertise.

“Sometimes a contractor will take a job because they need the work. But it may be outside of their primary area of expertise,”
says Frank Sommerville, attorney, nonprofit law specialist, CPA, and Church Law & Tax Senior Editorial Advisor.

Tips for finding the right match:
  • Develop a profile of your ideal candidate;
  • Ask detailed questions to compare candidates against that profile;
  • Use your network—other churches, businesses, and community leaders—to find recommendations;
  • Don’t rely solely on websites or online listings; get second and third opinions.

Start with consumer resources like:

Other churches may still be your best resource. Ask for references and inspect past work, if possible.

“If churches are given as a reference, contact the person who directly worked with the contractor. Ask about both the quality of work and service after the job,” Boyd says.

Your church network can also include groups like:
  • National Association of Church Facility Managers (NACFM);
  • International Facility Management Association (IFMA);
  • Business professionals in your congregation.

Verifying Credentials

Don’t take “licensed and insured” at face value. Always ask for proof—and verify it.

Key items to confirm:
  • Licensing: Requirements vary by trade and location. Roofers, electricians, and builders are usually licensed; janitors and landscapers may not be.
  • Insurance: Ask the contractor’s insurer to send a certificate of insurance directly to your church.
  • Coverage: Ensure liability and workers’ comp are appropriate for the job’s risk level.

“We specify what we expect for coverage and verify it with the insurance certificate. We are named as additionally insured on their policy,” Meines says.

Consider bonding for jobs involving subcontractors. Bonding protects your church if the contractor fails to pay their subcontractors or doesn’t finish the work. Boyd says his church asks for bonding from those who will be using several subcontractors.

Before signing anything, have an attorney review the contract.

Asking the Right Questions

Never hire a contractor without a face-to-face meeting. Ask for:
  • References;
  • Proof of insurance;
  • Licensing and bonding documents.

Ask deeper questions to gauge reliability:
  1. How long have you been in business?
    (Verify with your state’s business filing site.)
  2. How many of your clients are churches?
    Churches often need flexible schedules—like plowing snow Saturday night or prepping landscaping before Sunday.
  3. Are you financially stable?
    For large contracts, ask for financial statements or pay for a Dun & Bradstreet report.
  4. How often have you rescheduled in the past six months? Why?
    Occasional delays are normal (like for rain), but repeated issues could signal problems with staffing, equipment, or safety.

Getting Your Money’s Worth

To be good stewards, churches should compare pricing and performance.

Best practices:
  • Request multiple bids with the same scope of work;
  • Check current vendors’ prices against market rates;
  • Talk to property pros in your congregation—they may offer insight.

“Going out for bids is the only real way to compare numbers. But evaluating quality is harder,” Meines says.

The lowest bid isn’t always the best. Value includes reliability, professionalism, and long-term service.

“Some companies cut costs by hiring undocumented workers or running outdated equipment. That leads to performance problems,” Sommerville says.

Avoiding Conflicts of Interest

What if a board member has a relative who’s a contractor? Or a church member wants the job?

Stay ethical and transparent:
  • Get multiple bids;
  • Evaluate all vendors equally;
  • Exclude stakeholders from the decision process.

Sometimes a member offers a discount. Double-check that it’s a true deal.

Some churches avoid hiring members altogether to protect relationships. If your church allows it, follow strict procedures:
  • Treat the member’s bid like any other;
  • Exclude the member from voting on the decision;
  • Document everything.

Don’t Rush the Process

Unless it’s an emergency, take your time when hiring contractors.

“Don’t be in a hurry to get the contract let. Take a few more days and hours. If you spend more time on the selection process, you spend less time on the management process,” Sommerville says.

A thorough selection process prevents problems and helps ensure you’re hiring the right person for the right job—at the right time and price.

We’ve used a combination of AI and human review to make this content easier to read and understand.
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How to Establish a 501(c)(3) Ministry at Church

Explore the key steps for establishing a 501(c)(3) ministry at your church to expand your programs and comply with tax laws.

Michael E. Batts, CPA
Bio

Last Reviewed: January 10, 2025

Q: We’re looking for funding to help with summer activities for youth, such as day care programs, field trips, community involvement, tutoring, etc. Since we originally included education as a part of our ministry, would these activities fall under the church’s bylaws, or do we need to establish a new 501(c)(3) as a separate entity apart from the church? If so, would we need to set up a new corporation, complete with board of directors, bylaws, articles of incorporation, etc.?

Key Considerations for Establishing a 501(c)(3) Ministry

Churches sometimes form separate 501(c)(3) organizations to carry out certain activities. While the church itself is a 501(c)(3) organization, there are several practical reasons why a separate entity might be beneficial:
  • Liability Protection: Forming a separate corporation can help insulate the church from liability associated with specific activities.
  • Grant Funding: Many grant funders prefer or require grants to be given to non-church organizations, which can make a separate 501(c)(3) more attractive.
  • Operational Focus: A distinct entity allows for clear management and accountability for specific programs or initiatives.

Since churches are already 501(c)(3) organizations, federal tax law generally permits them to carry out activities similar to those of a subsidiary 501(c)(3). However, the following factors must be considered:
  • Alignment with Mission: Activities must align with the stated mission and purposes of the church as outlined in its governing documents.
  • Amendments to Governing Documents: If activities fall outside the church’s current mission, the governing documents, such as the bylaws, can be amended to reflect the changes. Consult with legal counsel for guidance.
  • Liability Insulation: A separate 501(c)(3) can provide protection from liability and create clarity around operational responsibilities.

Steps to Establish a Separate 501(c)(3)

To establish a new 501(c)(3) ministry, follow these steps:
  1. Draft articles of incorporation and file them with the state.
  2. Develop bylaws that define the organization’s purpose and operations.
  3. Appoint a board of directors to oversee the new entity.
  4. File Form 1023 with the IRS to apply for tax-exempt status.
  5. Establish policies and procedures for governance and operations.

It is critical to work with legal counsel to ensure compliance with state and federal regulations during the setup process.

The decision to establish a separate 501(c)(3) should be made in consultation with legal counsel. They can evaluate whether the activities align with the church’s mission and advise on potential liability risks, amendments to governing documents, and the operational structure of a new entity.

FAQs
  • What is a 501(c)(3) organization?
    A 501(c)(3) is a tax-exempt organization recognized by the IRS for charitable, religious, or educational purposes.
  • Do churches need a separate 501(c)(3) for youth programs?
    Not necessarily. Churches can conduct activities under their existing status if they align with their mission and purposes.
  • How long does it take to establish a 501(c)(3)?
    The process can take several months, depending on state filing timelines and IRS processing times.
  • What costs are involved in creating a 501(c)(3)?
    Costs include state filing fees, legal fees, and IRS application fees, which vary based on the organization’s size.
Michael (Mike) E. Batts is a CPA and the managing partner of Batts Morrison Wales & Lee, P.A., an accounting firm dedicated exclusively to serving nonprofit organizations across the United States.
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Church Board Members’ Individual Liability

Are individual board members liable for their own actions as well as other board members’ decisions?

David Middlebrook

Q: Are individual board members liable for their own actions as well as other board members’ decisions?

As a general rule, individual members are not liable for actions they take on behalf of the church, such as voting at board meetings. Most jurisdictions also allow the church to indemnify board members when there is a complaint, meaning to pay for their defense and not make any claim on behalf of the church against them.

However, sometimes board members are accused of intentional or criminal misconduct, in which case they will be personally liable. One emerging issue that has surprised board members is that they can be held personally responsible by the IRS for a tax debt if they were part of a board that approved unreasonable compensation for an employee of the church.

A board typically acts by majority rule and no single member is going to be liable for board actions. But, if the board was engaged in intentional or criminal misconduct, such as using church funds for personal gain, then they may be responsible. A board member owes the church a duty of loyalty, meaning not only is s/he supposed to only do things that are in the best interests of the church, but s/he must also make sure that other board members do the same.
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Protecting Church Board Members from Liability

Can a church board be sued for mishandling a situation involving the pastor?

David Middlebrook

Q: Can a church board be sued for mishandling a situation involving the pastor? Is there insurance available to cover this liability?

Board is a corporate term (short for “board of directors”) that assumes that the church is incorporated as a nonprofit corporation or its equivalent. One of the benefits of incorporation is that the individual officers and directors are not personally liable for the actions they take on behalf of the corporation.

Many states also offer charitable immunity to persons acting on behalf of their church, although some states are more protective than others. However, whenever there is an allegation against a church, it is now extremely commonplace for the complaining party to individually name the board members as parties to the complaint.

One of the initial challenges in defending a church is to get those individual board members removed as parties on the basis that they are not individually liable or are protected by charitable immunity. If a church is not incorporated, but is known as an “unincorporated association,” then all of its members, including the board, are potentially liable for church activities.

Some organizations obtain a mix of liability insurance as well as errors and omissions coverage for directors in the event there is a liability issue.
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When A Sex Offender Wants to Serve in Children’s Ministry

How to properly vet sex offenders who wish to serve.

Frank Sommerville, Attorney, CPA
Bio

Q: A background check was done on a volunteer who wants to serve in children’s ministries at our church. The check revealed that this person is a Level III sex offender, with the last offense occurring 21 years ago. I stated that in no way should this person be allowed to serve in this ministry, but some others are trusting his rehabilitation and say he is unlikely to be a threat to children (his victims were all adult women). What recommendation do you have?

Before I answer your question, I want to applaud you for using a criminal background check in screening your volunteer workers. Many churches still do not take this measure when recruiting volunteers, which greatly increases the possibility that dangerous individuals will end up working in various ministries.

Understand the risks

In answer to your question, in most states Level III sex offenders are considered the most likely to recommit a sex crime. In light of the state making this assessment of the individual, the church will likely be held liable if his next victim is associated with your church.

Leave room for grace

I also do not doubt that Christ can transform individuals into new persons and totally heal them from their past sins. At the same time, that transforming nature of Christ will generate external evidence of the new nature in the individual. Church leaders must rely on the leadership of the Holy Spirit in making this decision. But they also must do their homework.

Create a plan of action

The church leadership needs to create a plan of action for evaluating this individual. They must gather all the relevant facts about the past crimes and measure the risk of future harm.

The church should not rely on the word of the former sex offender concerning his crimes.

The church should measure the truthfulness of the former offender against the facts that the church gathers from sources related to his crimes. For example, the church should go to the court and review the files related to his prior crimes. The church should also go to the police department and review copies of the police reports of his prior crimes.

Connect with probation officer

If possible, the church should also receive permission to discuss the individual with his probation officer. The church may also want to discuss this individual’s situation with his family members and close friends. The pastors conducting the due diligence should form an opinion about the character of the individual.

Seek and expect the truth

If the sex offender has been truthful about his crimes, then the church may consider the mitigating circumstance (time since the last offense and age of his victims) related to the types of sexual offenses he committed. If he has not been truthful, then he should be rejected as a volunteer in any capacity.

Ongoing due diligence

The reviewing of the individual’s past and present does not end the due diligence. The church’s favorable evaluation of the evidence must also be weighed against the risk of harm to innocent members.

The church should review its due diligence materials with its attorney and insurance company. If the due diligence and professional advice demonstrate he is unlikely to pose a risk to other members, the church may allow him to volunteer with very close supervision. However, if any hint of his former nature arises through this process or the professionals are unwilling to support his request to volunteer, the church should not allow him to volunteer in any capacity.

Consider a Christian psychologist

To provide additional assurance that our innocent members will not be harmed, the church should also receive professional advice regarding the individual.

Frequently, the church will direct the former sex offender to a Christian psychologist for evaluation. If the Christian psychologist renders a written report stating that he is unlikely to recommit sex crimes in the future, then the church may have a basis for allowing the individual to volunteer in limited capacities.

Frank Sommerville is a both a CPA and attorney, and a longtime Editorial Advisor for Church Law & Tax.
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A Church’s Legal Responsibility for Board Decisions

It’s important to understand if board members are acting with “apparent authority.”

David Middlebrook

Q: Is the church responsible for its board members’ actions?

The church is bound by the actions of its board, assuming those actions were taken following proper procedures such as pursuant to the church’s bylaws or constitution, and were undertaken as a proper function of the board. So, if the board approved a vendor contract to lease a copier, the church is probably responsible. Even if the board acted without authority, the church might still be responsible under what is known as apparent authority. Apparent authority means that the person dealing with the church through the board reasonably believed that the board had authority to act on behalf of the church.
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Enforcing Restraining Orders: Tips for Churches

What is our church’s responsibility when presented with a restraining order?

Frank Sommerville, Attorney, CPA
Bio

Q: Our church was recently presented with a copy of a restraining order from a member who expects us to enforce it. What are our responsibilities to enforce this restraining order? How far must we go and how do we handle privacy issues when all nursery volunteers have to be informed? We are often told this is confidential.

When a church is presented with a court order by anyone, the church first must review the order to see if it is a party to the lawsuit. If the church is not a party to the lawsuit, it is not legally responsible for enforcing the court order. Churches frequently receive copies of court orders arising out of divorces or other family disputes, but rarely is a church a named party.

In any case, a church is responsible for the safekeeping of children left in the nursery. The church should use a system to identify the individuals authorized to pick up children from nursery. For example, some churches issue a “claim check” to parents as they drop off their children. Without the claim check, no one is authorized to pick up the children. Assuming this system is followed 100 percent of the time, the church does not need to worry that children will be picked up by unauthorized adults.

If an unauthorized adult attempts to pick up the children, the nursery workers should call the police immediately.

No law requires you to keep the court order secret. Indeed, it is a public record. The church may determine the amount and timing of information it shares with the nursery workers and the security team at the church. Under the ideal circumstances, the church wants to prevent the parents from entering any church building. I suggest that the security team be given the make and model of the cars driven by the parents, along with colors and the license plate numbers. If the car enters the parking lot, the security team can greet the car and determine whether the occupants have ulterior motives. If necessary, the security team may call the police. If the church has specific evidence that the parents may attempt to grab the children at church in violation of the court order, the church should put the local police department on notice prior to the weekend services.

In summary, the church is not responsible for enforcing most family related court orders but is responsible for safeguarding the children placed in the church’s care.

If the church is a named party to the court order, the church should immediately contact an attorney for further guidance.
Frank Sommerville is a both a CPA and attorney, and a longtime Editorial Advisor for Church Law & Tax.
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Securing Church Financial Records: Two Steps for Access Control

Discover essential tips for securing church financial records and maintaining access control to safeguard sensitive information.

Vonna Laue, CPA
Bio

Last Reviewed: January 26, 2025

Q: We have an office manager, and a bookkeeper, who have separate offices that are connected by an unlocked door. The doors on the outside of both offices are locked. About seven people have keys to the combined office so that they can get in to make photocopies and get other office supplies when needed. Should we have a separate lock on the door leading into the bookkeeping office that only the bookkeeper and treasurer can access?

First of all, it’s critical to understand that the security of information and financial records is critical to your church.

Step 1: Limit access

If items such as giving information, check stock, and payroll records are kept in the bookkeeper’s office, there should be limited access to that room.

Step 2: Understand the exceptions

An exception would be if all items were secured within the room itself such as in a locking file cabinet or a safe. Once that determination is made, be certain you are aware of all individuals with access to the various locked areas. Sometimes we forget that an executive pastor or a facilities employee has a master key and access to safe keys or file keys. All individuals should be considered when determining the appropriate level of access to financial records.
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 the Church Board Mishandles Situations

Can the church hold the board or its individual members liable?

David Middlebrook

Q: Can the church hold its board members liable corporately or individually for mishandling situations involving the church?

If the board was exercising reasonable business judgment in a transaction for the church, then it is not liable if the action results in a bad outcome.

Board members do not have to be perfect.

They can make mistakes, just as we all do, without facing liability. If the board was not acting in a proper business capacity, such as stealing church money, then in that instance the church can bring a claim against the board. We have also encountered church splits where certain factions have brought claims against board members claiming that the board was not following their duties or exceeding their powers under the church’s governing documents.

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Therapy Animals in Church

You must make sure you’re not subject to public accommodation provisions under state or local law.

Richard R. Hammar, Attorney, CPA
Bio

Q: A woman in our church has begun bringing her dog with her to worship services. She claims she has asthma, and the dog is able to alert her to oncoming asthma attacks. She insists on sitting in the middle of the sanctuary, which has distressed many of our members, some of whom are allergic to animals.

When I asked the woman if she would be willing to sit in the back row in order to resolve the concerns of her fellow parishioners, she became enraged and threatened to sue the church for violating her rights under the federal Americans with Disabilities Act. Is she right? Have we violated the ADA by asking that she and her dog sit in the back row of the church during worship services?

The Americans with Disabilities Act (“ADA”) has two main provisions:

(1) Employment discrimination. The ADA prohibits employers with at least 15 employees, and that are engaged in interstate commerce, from discriminating in any employment decision against a qualified individual with a disability who is able, with or without reasonable accommodation from the employer, to perform the essential functions of the job. This section of the ADA is not relevant to your question, since the woman with the dog is not an employee of the church.

(2) Public accommodations. Another section of the ADA prohibits discrimination against disabled persons by privately-owned places of public accommodation. The ADA defines the term public accommodation to include 12 types of facilities, including auditoriums or other places of public gathering, private schools (including nursery, elementary, secondary, undergraduate, and postgraduate), and day care centers.

Disabled persons are permitted to sue an organization that owns or operates a place of public accommodation that engages in one or more of these discriminatory practices. However, the ADA specifies that its public accommodation provisions “shall not apply to … religious organizations or entities controlled by religious organizations, including places of worship.” As a result, most types of religious organizations are excluded from the prohibition of discrimination in places of public accommodation. The House Report to the ADA specifies that “places of worship and schools controlled by religious organizations are among those organizations and entities which fall within this exemption.” The House Report further specifies that “activities conducted by a religious organization or an entity controlled by a religious organization on its own property, which are open to nonmembers of that organization or entity are included in this exemption.”

It is important to note that while religious organizations are not subject to the ADA’s public accommodation provisions, they may be subject to similar provisions under state or local law.
Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.
Image: AdobeStock/momius

When Ministers Fail to File Taxes

Our pastor has not filed a tax return in years—what should we do?

Richard R. Hammar, Attorney, CPA
Bio

Last Reviewed: January 10, 2025

Q: We just learned that our youth pastor has not filed a tax return since graduating from seminary seven years ago. What should we do?

Answers to common questions about why ministers fail to file taxes and how to address the issue effectively.

We just learned that our youth pastor has not filed a tax return since graduating from seminary seven years ago. What should we do?

Unfortunately, this is a common problem for ministers, and it stems from their unique tax status. Below are answers to common questions about why this happens and what steps can be taken to address it.

Why do ministers often fail to file taxes?

Ministers often fail to file taxes due to misconceptions about their tax responsibilities. Unlike secular employees, churches are not required to withhold income or Social Security taxes from ministers’ wages. This happens because:
  • Ministers are classified as self-employed for Social Security purposes, requiring them to pay self-employment taxes instead of having them withheld.
  • The tax code exempts ministers’ wages from income tax withholding unless they opt for voluntary withholding.

Many seminaries fail to educate ministerial students about these obligations. This lack of information leads to missed payments, noncompliance, and, in some cases, a failure to file tax returns altogether.

What penalties apply to ministers who fail to file tax returns?

Failing to file taxes or pay owed amounts on time can result in severe consequences, including:
  • Failure to File Penalty: Applies when a tax return is not filed by the due date without reasonable cause.
  • Failure to Pay Penalty: Assessed when taxes owed are not fully paid by the due date.
  • Interest Charges: Accrues on unpaid taxes and penalties until the balance is resolved.
  • No Statute of Limitations: The IRS can assess and collect taxes indefinitely if a return has never been filed.

These penalties can add up quickly, making it essential for ministers to address unfiled taxes as soon as possible.

How can ministers resolve unfiled taxes?

Ministers with unfiled taxes should take the following steps:
  1. Consult a CPA or Tax Attorney: Seek professional advice to assess the situation and determine the best course of action.
  2. File Past Returns: Submit all unfiled returns promptly to initiate the statute of limitations for IRS actions.
  3. Explore Payment Options: Consider installment agreements or offers in compromise if the full amount cannot be paid immediately.
  4. Check Refund Eligibility: Refund claims must be filed within three years of the return’s original due date.

How can churches help prevent this issue?

Churches play a critical role in helping ministers understand and meet their tax obligations. Here are some suggestions:
  • Discuss tax filing requirements with new ministers, particularly those who are recent seminary graduates.
  • Provide IRS Form 1040-ES, including instructions for calculating and paying estimated taxes.
  • Encourage voluntary withholding to simplify the tax payment process.

By providing this guidance, churches can help ministers avoid common tax pitfalls.

FAQs: Ministers Failing to File Taxes

1. Can ministers be penalized for failing to file if they are due a refund?

No. There is no penalty for failing to file if a refund is due. However, refunds must be claimed within three years of the return’s due date.

2. How can ministers avoid penalties for late payments?

Ministers can reduce penalties by paying as much of the tax owed as possible and setting up a payment plan with the IRS.

3. Why does the IRS treat ministers as self-employed?

Under the tax code, ministers are classified as self-employed for Social Security purposes, requiring them to pay self-employment taxes.

4. What happens if no return is filed?

The IRS can assess and collect taxes indefinitely if a tax return has not been filed, as the statute of limitations does not start until a return is submitted.

Addressing unfiled taxes is critical for ministers and churches alike. Taking prompt action and seeking professional advice can resolve these issues and prevent future complications.
Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.
Image: getty

Adjusting a Pastor’s Housing Allowance

Adjusting a pastor’s housing allowance when expenses are less than the amount previously approved.

Frank Sommerville, Attorney, CPA
Bio

Last Reviewed: January 20, 2025

Q: If a pastor moves to a temporary housing situation and the housing expenses are lower than the approved housing allowance, does the board need to adjust the amount of his housing allowance designation?

No, the board is not required to adjust the designated housing allowance even if a pastor’s housing expenses decrease due to a temporary housing situation. In such cases, the pastor reports any excess housing allowance as taxable income on their Form 1040. The church has no obligation to monitor or ensure the proper tax treatment of the housing allowance on the minister’s tax return.

Can the Housing Allowance Be Adjusted?

Yes, the church can adjust a pastor’s housing allowance, either increasing or decreasing the amount, at any time. However, adjustments must meet the following conditions:
  • Prospective changes: Adjustments must take effect prospectively and cannot be applied retroactively.
  • Board approval: The church board must formally approve any changes to the housing allowance designation through official action, such as meeting minutes or a resolution.

This flexibility allows churches to align housing allowances with changes in a pastor’s housing expenses while maintaining compliance with IRS regulations.

Best Practices for Adjusting a Housing Allowance

To ensure compliance and minimize errors, churches should consider these best practices:
  • Clearly document any adjustments to the housing allowance in the board’s official minutes.
  • Communicate changes to the pastor promptly to help them plan their tax reporting.
  • Consult IRS Publication 517 or a tax professional to ensure proper handling of housing allowance adjustments.

FAQ: Adjusting a Pastor’s Housing Allowance

1. Does the church have to adjust the housing allowance if the pastor’s expenses decrease?

No, the church is not required to adjust the housing allowance. The pastor reports any unused portion of the allowance as taxable income on their Form 1040.

2. Can the housing allowance be adjusted during the year?

Yes, the housing allowance can be adjusted at any time, but the change must be applied prospectively and approved by the board.

3. What happens if the housing allowance is overestimated?

If the allowance exceeds the pastor’s actual housing expenses, the excess must be reported as taxable income on the pastor’s tax return.

4. How should the church document housing allowance adjustments?

Adjustments should be documented in official board meeting minutes or through a formal resolution. This ensures transparency and compliance with IRS rules.

For further guidance on housing allowance adjustments, visit IRS.gov or consult with a tax professional experienced in clergy tax matters.

Frank Sommerville is a both a CPA and attorney, and a longtime Editorial Advisor for Church Law & Tax.
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How Should a Church Distribute Assets Upon Dissolution?

Churches dissolving must follow legal and tax rules when distributing assets. Here’s what you need to know about gifts to pastors and ministries.

Michael E. Batts, CPA
Bio

Last Reviewed: January 30, 2025

Q: Our church is dissolving. Can we give the pastor a sizable love gift for his faithfulness, and give the rest of the money and much of our property to another church or ministry?

Yes, the church may pay the pastor a love gift so long as it is treated as taxable compensation to him, and so long as the love gift, together with his other compensation and benefits from the church, are reasonable in total.

Reasonableness is a somewhat subjective concept, but the tax law defines it as what similar organizations pay similarly qualified people for performing similar duties. It would not be wise to be too aggressive in making such a gift to the pastor, as there are severe penalty taxes that could apply to both the pastor and those who approve the gift if the amount, together with his other compensation, is determined to be excessive.

As for distributing assets to other churches or ministries recognized by the IRS as exempt and described in Section 501(c)(3) of the Internal Revenue Code, yes, federal tax law allows you to make liquidating and dissolution distributions to such organizations.

You should consult with an attorney about the best way to legally wind up the affairs of the church. If you are a corporation, your attorney may advise you to file articles of dissolution in your state or to take certain other actions (such as leaving the corporation open for a period of years) to reduce the risk of personal or successor liability. You should also address any contractual obligations or liabilities the church may have when talking with your attorney.
Michael (Mike) E. Batts is a CPA and the managing partner of Batts Morrison Wales & Lee, P.A., an accounting firm dedicated exclusively to serving nonprofit organizations across the United States.
Image: AdobeStock/Uuganbayar

Are Personal Uses of Church Equipment by Staff a Taxable Benefit?

Occasional personal use of church equipment may qualify as a de minimis benefit and not be taxable. Here’s what church leaders need to know.

Richard R. Hammar, Attorney, CPA
Bio

Q: Members of our church staff occasionally use a church computer, or the church’s copy machine, for personal purposes. One of our board members insists we must value these occasional uses of church equipment and report them as taxable income on their W-2 forms. Is this correct?

The tax code specifies that employers can exclude the value of a de minimis benefit it provides to an employee from the employee’s wages. A de minimis benefit is any property or service provided to an employee that has so little value (taking into how frequently the employer provides similar benefits to employees) that accounting for it would be unreasonable or administratively impracticable.

Cash and cash equivalent fringe benefits (for example, use of gift card, charge card, or credit card), no matter how little, are never excludable as a de minimis benefit, except for occasional meal money or transportation fare.

Examples of de minimis fringe benefits are occasional typing of personal letters by a company secretary; occasional personal use of an employer’s copying machine, provided that the employer exercises sufficient control and imposes significant restrictions on the personal use of the machine so that at least 85 percent of the use of the machine is for business purposes; occasional group meals, or picnics for employees and their guests; traditional birthday or holiday gifts of property (not cash) with a low fair market value; occasional theater or sporting event tickets; coffee, doughnuts, and soft drinks; local telephone calls; and flowers, fruit, books, or similar property provided to employees under special circumstances (e.g., on account of illness, outstanding performance, or family crisis).

Examples of fringe benefits that are not excludable from gross income as de minimis fringes are:

  • season tickets to sporting or theatrical events
  • the commuting use of an employer-provided automobile or other vehicle more than one day a month
  • membership in a private country club or athletic facility, regardless of the frequency with which the employee uses the facility
  • employer-provided group-term life insurance on the life of the spouse or child of an employee
  • use of employer-owned or leased facilities (such as an apartment, hunting lodge, boat, etc.) for a weekend.

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

Understanding Church Payroll Tax Withholding and Exemptions

Churches must comply with payroll tax withholding rules, including proper handling of W-4 forms and employee exemptions. This guide covers IRS regulations, common tax protester arguments, and best practices for ensuring compliance with federal tax laws.

Richard R. Hammar, Attorney, CPA
Bio

Last Reviewed: February 4, 2025

Completing Form W-4

When you hire an employee, you must have them complete a Form W-4 (Withholding Allowance Certificate).
This form reports:
  • Marital status
  • Withholding allowances
  • Any additional withholding amounts

If an employee fails to provide a properly completed Form W-4, you must withhold federal income taxes as if the employee were single with no withholding allowances.

Claiming Exemption from Withholding

An employee may use Form W-4 (lines 1–4 and 7) to claim exemption from withholding, but only if:
  • They had no federal tax liability last year, and
  • They expect to have no federal tax liability this year.

Important:
If someone claims the employee as a dependent, additional restrictions may apply.

Reminder:
  • A W-4 claiming exemption is valid for one calendar year.
  • To continue exempt status, employees must submit a new Form W-4 by February 15 each year.
  • Without a new W-4, you must withhold taxes as if the employee were single with no allowances—unless you have an earlier valid W-4 on file.

Handling Invalid Forms W-4

A Form W-4 is invalid if:
  • The employee changes or removes certification language.
  • The employee indicates the form is false or misleading.

If you receive an invalid W-4:
  • Do not use it to determine tax withholding.
  • Notify the employee and request a new, valid Form W-4.
  • If the employee fails to provide a valid form, withhold as single with no allowances—unless a prior valid W-4 is on file.

Dealing with “Tax Protester” Claims

Some employees may incorrectly claim exemption based on “tax protester” arguments, such as:
  • Taxes are voluntary.
  • Wages are not income.
  • Only federal employees owe taxes.
  • Religious or moral objections under the First Amendment.
  • Fifth Amendment rights against self-incrimination.
  • Other constitutional claims under the Fifth or Thirteenth Amendments.

The IRS classifies all of these arguments as frivolous and warns that taxpayers using them may face substantial penalties.

Can Churches Be Sued by Employees Over Withholding?

Case Example:
In Fuce v. Hoffman, 2010-1 U.S.T.C. ¶50,205 (E.D. Pa. 2010):
  • A new employee (“Alan”) claimed to be exempt based on tax protester claims.
  • The employer properly withheld payroll taxes.
  • Alan sued for a refund and $250,000 in punitive damages.
  • The court dismissed the lawsuit, labeling it frivolous.

Key Point:
Employers must comply with federal and state payroll withholding laws, regardless of an employee’s personal beliefs.

Payroll Tax Withholding: Church Responsibilities

General Rules
  • Employers must withhold income, Social Security, and Medicare taxes from employees’ wages.
  • Churches do not withhold Social Security or Medicare taxes from ministerial wages.

Special Rules for Ministers
  • Ministers treated as employees may elect voluntary withholding of income taxes by submitting a Form W-4.
  • Ministers are always self-employed for Social Security and Medicare purposes—even with voluntary income tax withholding.
  • Ministers may request additional withholding to cover self-employment taxes (reported on line 6 of Form W-4).

Churches Exempt from Social Security and Medicare Taxes
  • Churches that filed Form 8274 timely with the IRS are exempt from the employer’s share of Social Security and Medicare taxes for lay employees.
  • Note:
    Even if exempt from these taxes, churches must still withhold federal income taxes.

Handling Form W-4s
  • Employees must submit a completed Form W-4 before withholding begins.
  • If no Form W-4 is submitted, withhold as if the employee is single with no allowances.
  • Employees may claim exemption only by completing lines 1–4 and 7 and signing the form.
  • Exemptions expire annually and require a new W-4 by February 15 each year.

Encourage Annual W-4 Review

Advise employees (including ministers) to review their W-4 annually because:
  • Life changes—such as a birth, marriage, pay raise, or major medical expenses—may affect withholding.
  • Recent tax law changes may lower overall tax liabilities.

Outdated W-4s can cause withholding to be too high or too low.

Responding to IRS Requests for Form W-4

If the IRS requests copies of W-4 forms:
  • Send them to the address provided in the notice.
  • After submission, continue withholding based on the W-4 unless the IRS issues a lock-in letter specifying different withholding instructions.

Final Note: Frivolous Tax Protester Claims

Churches should never accept frivolous arguments against withholding obligations.
The only valid way for an employee to claim exemption is by properly completing and signing Form W-4 (lines 1–4 and 7).
Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.
Image: AdobeStock/di_media

Screening Volunteers for Church Visitation Ministries

Do we need to do background checks on adults who will be visiting shut-ins?

Michael Allison
Bio

Last Reviewed: February 13, 2025

Q: At a recent ministry seminar, it was recommended that a criminal background check be performed on adult volunteers who visit other adults in homes, hospitals and convalescent homes. Our church screens all employees and volunteers who work with children. Are we required to do the same for adults who are engaged in a visitation ministry that’s directed toward other adults?

There are two things you should consider when determining who you should screen.

What’s required?

First, you’ll want to look at any applicable law in your state that requires worker screening. By examining such laws, you can determine the specific situations in which worker screening is required. For a simple ministry visitation program, in which non-professional volunteers or employees go to hospitals and nursing homes to call on sick and needy adults, it’s unlikely that any criminal background check of such workers is legally required.

Virtually all states require background screening for workers in certain programs and ministries (such as fee-based child care operations). There are also certain situations, such when health care or mental health professionals work with disabled adults, in which state law may trigger the need for a criminal background check. Absent child care activity or the rendering of professional care to disabled adults, however, state laws are unlikely to require a background screening check for workers.

Another related issue worth mentioning is state licensing requirements. Most states have licensing procedures for certain professions, including those that involve professional care-giving activity. So a church that runs a program like an elder day care or similar ministry may be subject to state licensing requirements. To be certain that all bases have been covered, you’ll want to check with a local attorney to determine the scope of worker screening requirements and licensing laws in your state.

What’s wise?

Second, although perhaps not required by state law, it may still be prudent to perform criminal background checks on workers involved in your visitation ministry. Such screening can help eliminate workers who have a background which isn’t conducive for such ministry, and this also demonstrates that your ministry has taken reasonable care to safeguard those whom you are serving.

Keep in mind that not all volunteers require the same level of scrutiny. Those volunteers who have frequent contact with children, the elderly, or people with disabilities should be held to a higher standard. It’s clear that the elderly and disabled adults can constitute a vulnerable population. If a ministry organizes a program in which volunteers interact with an elderly or disabled population and one of the volunteers engages in misconduct (whether physical, emotional or sexual abuse), the ministry may well be held liable for these acts.

So, though it may not be required, your ministry will still likely benefit from running criminal background checks on workers who frequently interact with the elderly or the disabled. If your ministry doesn’t have a policy in place targeted toward the protection of elderly and disabled individuals, you may want to consider developing one. Though the details of an abuse prevention program targeted to protecting the elderly might differ somewhat than one targeted at children, the screening procedures for the two would be very similar.

Finally, if the visitation ministry involves driving ministry-owned vehicles, or involves driving people to doctor appointments, the local grocery store, etc., you should strongly consider reviewing the driving records of your visitation workers before authorizing them to get behind the wheel.
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