Many church boards have two main areas of focus: the faith-based aspect of governance and the business and stewardship aspect. It’s important for your church to balance the two, because a weakness in either can cause serious issues in overall governance.
Too often, we see church boards that are strong in one area but challenged in the other. Some churches are dominated by mission but lack proper fiscal management. Others are strong operationally, but lack leadership support for the “why” that drives the church’s vision and mission.
Although I’ve served as an executive pastor, a role in which I was concerned with both the spiritual and business sides of the church, the observations in this article focus on the business and stewardship aspects church boards must monitor.
Who is monitoring your church’s finances?
When talking with a new church client through my work with the accounting firm CapinCrouse, I want to find out who is monitoring the church’s finances. Sometimes it’s an elder. Sometimes it’s a subset of the full board. All too often, it’s no one.
I have seen churches rely heavily on the bookkeeper or executive pastor to monitor finances, but when that individual produces or receives the financial information, they lack either the time or expertise to use it strategically.
Unfortunately, this means boards don’t always have useful financial information on which to base their decisions. The challenge in these situations is that the internal reporting structure provides neither accurate nor necessary information to paint a true picture of the church’s financial health. Without that, the board can’t take appropriate action.
Your church should invest in hiring competent accounting personnel to ensure the basic records are well-maintained and accurate. It is also key to train the accounting staff on what information the board needs and how to prepare it accurately and on a timely basis.
What financial information should your board monitor?
No matter who the hands-on designee is, however, ultimately it’s the board’s duty to monitor the church’s financial situation because it holds the fiduciary responsibility for oversight.
So what financial areas should your board monitor? While this isn’t an all-inclusive list, the board should be responsible for:
- Protecting the overall health of the church by continuously analyzing financial condition and trends
- Maintaining adequate levels of reserves
- Safeguarding investments
- Ensuring internal controls are in place to prevent fraud and protect assets
The board should also pay careful attention to various financial ratios and measurements,* seeking to answer questions like these:
- Are we using our financial resources as efficiently as possible?
- How does our church compare with similar churches?
- What financial indicators should we monitor, and how?
- Are we financially healthy?
*Editor’s note: For specific help monitoring and measuring key financial ratios, see these articles by CPA and editorial advisor Vonna Laue: “Using Comparative Ratios to Improve Church Financial Health,” “How to Monitor Your Church’s Financial Health,” “5 Cash Flow Ratios and Measures Your Church Must Monitor,” “4 Income and Giving Ratios Your Church Should Monitor,” “4 Expense Ratios and Measurements Your Church Should Monitor,” “6 Debt Ratios and Measurements Your Church Should Monitor.” The ratios and measurements in Laue’s article are based on metrics developed for CapinCrouse’s Church Financial Health Index.
Structuring your church board subcommittees to ensure adequate financial oversight
Certain denominations have distinct board structures outlined by their denominational guidelines. But for others, the structures can vary significantly.
Regardless of requirements, the effectiveness of a church board is not determined by the number of committees or positions assigned to members. Rather, it is determined by the composition of the board members and having members with the proper financial expertise in key positions. This could mean members who are business owners, chief financial officers, accountants, or controllers, for example. Experience and familiarity with not-for-profit financial statements or key internal control systems is also important.
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