Key point 6-03.06. A church ordinarily should retain custody and control over its accounting records. Ownership and control generally should not be seded to the church treasurer, bookkeeper, administrator, or other officer, employee, or volunteer.
Who owns a church’s accounting records, and who has the right to maintain possession of them? Consider the following points:
1. The nonprofit corporation laws under which most churches are incorporated require that corporations maintain various kinds of records, including financial books of account. To illustrate, the Model Nonprofit Corporation Act, which has been adopted by most states, provides that “a corporation shall maintain appropriate accounting records.” While this language does not directly address ownership, the fact is that how can a church maintain appropriate accounting records if they are possessed and “owned” by the treasurer? As a result, it should be assumed that the church is the owner of its financial records, and not a volunteer treasurer who takes them home. The takeaway point is that location, and even possession, does not determine ownership.
2. Allowing a volunteer treasurer to take the church’s accounting records home is not recommended, for several reasons, including the following: (1) Such a procedure violates two of the core principles of internal control—segregation of duties and oversight over operations. Imagine the financial improprieties that could go undetected under such an arrangement. (2) Irreplaceable financial records may be lost, stolen, or destroyed while in the home of the church treasurer, and confidential information may be accessed by family members. (3) Church staff will be frustrated in the performance of their duties because of the inaccessibility of the church’s financial records. (4) Such an arrangement can provide a treasurer with “leverage” that can be exerted to achieve ulterior objectives. (5) Such an arrangement may result in the permanent inaccessibility of church records in the event of a dispute with the treasurer, or at such time as the treasurer leaves office voluntarily or involuntarily.
3. Church leaders should check the church’s bylaws or other governing document to determine what, if any, authority the treasurer may have over the church’s financial records. Some church bylaws state that the treasurer shall have “custody” of the church’s financial records, or “be responsible” for them. But custody and responsibility are not the same as ownership, although such terminology suggests that the treasurer is authorized to remove the church’s financial records to his or her home. For the reasons stated, this generally is not advisable, and so church leaders should review their governing document in order to identify and amend such a provision should one exist.
4. The same logic applies to paid employees. A church’s bookkeeper, business administrator, or other paid employee should not keep financial records at home. An additional consideration applies to employees. The federal Fair Labor Standards Act guarantees overtime pay for hours worked in excess of 40 during the same week. States have their own requirements. The point is that churches have no way to monitor hours worked by an employee in his or her residence, and so compliance with the FLSA is virtually impossible. Some churches allow employees to take church records home to work on them as unpaid “volunteers.” But this is not permissible, according to Department of Labor interpretations of the FLSA. The bottom line is that allowing church employees to take church records home in order to work with them may expose a church to significant liability under the FLSA or a state counterpart.
5. Some church leaders allow financial records to be kept in the private residence of a treasurer or other church officer or employee to preserve them from theft or a natural disaster affecting the church office. This risk can be managed by storing the records in a locked and immovable fireproof cabinet. After data on financial records is integrated into the church’s computer software, backup copies can be stored off-site.
6. AICPA Statement on Auditing Standards (SAS) number 96 (“Audit Documentation”) requires CPAs to maintain specified kinds of documentation when performing an audit. Most states have enacted laws specifying that CPAs own the working papers and other documentation they prepare in performing their duties. As a result, a church ordinarily cannot assert ownership in the working papers of CPAs who are retained to perform an audit of the church.