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Simple Guide to Internal Controls

Basic principles for protecting church finances.

The first thing every church needs to understand (and believe) is that they're not immune to financial misconduct. The "We don't need to worry about that here" mentality is the reason why so many churches have been the victims of embezzlement. Even if your church isn't being victimized (right now), implementing a system of internal controls will ensure that your finances aren't at risk in the future.

Here are a few basic principles pertaining to the implementation of internal controls:

Internal Controls = Good Stewardship

Even if you trust every leader at your church (every usher, every money-counter, and so on) you probably wouldn't feel comfortable giving all of them a copy of your house key—or access to your bank account. Even if you trust them completely, there's no reason to provide such unlimited access to your possessions. In the same way, no one should be given unlimited access to the church's assets.

Internal controls are like checks and balances—or an accountability system. Not only do internal controls make your church's finances safer, but the knowledge that your church has a system in place will also serve as a deterrent—removing the temptation for a leader to embezzle or to "borrow" funds temporarily.

Internal Controls Do Not Imply a Lack of Trust

A system of internal control not only protects your church's assets, but it protects church leaders from unfounded accusations. If a church leader is wrongfully accused of embezzlement, he will be glad the church's internal controls have made such a charge impossible.

If you are worried about offending someone who has been serving dutifully for years (which is often the case), then make sure you emphasize that the changes have nothing to do with any individual. Rather, the changes are necessary for ensuring the financial security of the church in the present and future.

Good-intentioned leaders and volunteers should welcome the implementation of internal controls. At first the new practices might seem inconvenient, but in the end, your leaders will be less susceptible to false accusations. And they will understand that you have the church's best interest at heart.

Write it Down

Documenting your church's internal control policies is a vital step. This communicates that you are serious about implementing these practices, and it will encourage your leaders to abide by the new restrictions—even if they might seem tedious or unnecessary.

Annual Audits

In addition to implementing a system of checks and balances, and limiting access to accounts and cash supplies, churches need to consider finding a local CPA to perform an annual audit of their finances.

Audits generally spook people. However, churches can use this to their advantage. An annual audit of the church's finances, though somewhat costly, can serve as a great deterrent for would-be embezzlers—and an incentive for all church leaders to be conscientious about keeping receipts, balancing accounts, and reconciling errors.

Emphasize Integrity

Many churches realize too late that they need a better system of internal controls—after they learn someone has been embezzling their funds (sometimes for many years). In those instances, the impetus for change is apparent to everyone. But churches that have never been victimized do not have the same incentive to overhaul their current system. That doesn't mean the changes are any less necessary.

Internal controls are imperative for your church's financial security. If your church needs to revamp its system, don't overlook the spiritual element. Use this time to emphasize the need for honesty and integrity among your leaders—and throughout the church. Remember that embezzlement isn't just about stealing, but it's also a violation of the trust your church members placed in your leaders.

The fallout from financial misconduct is considerable, which is all the more reason to reduce the risk of embezzlement in your church. Establishing internal controls is the best way for churches to ensure their financial security.

This content is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. "From a Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations." Due to the nature of the U.S. legal system, laws and regulations constantly change. The editors encourage readers to carefully search the site for all content related to the topic of interest and consult qualified local counsel to verify the status of specific statutes, laws, regulations, and precedential court holdings.

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Posted:
  • May 25, 2010

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