What Church Bookkeepers Miss: #1 Proper Recording Of Donations and Offerings
Effective bookkeeping takes years of learning, experience, and keeping up to date on changing tax laws and regulations. Church bookkeepers are entrusted with stewarding their congregation’s resources as well as possible, but despite their best efforts, there are some common accounting stumbling blocks that are helpful to avoid.
For example, improper recording of church donations and offerings can have far-reaching consequences, impacting not only the financial health of the church but also its relationship with congregants. Join us as we explore five common mistakes in recording donations and the potential impacts of these errors.
Recording Of Donations and Offerings: 5 Costly Mistakes
1. Misattribution of Donations
One prevalent church bookkeeping mistake is attributing donations to the wrong funds. Churches often have multiple funds designated for specific purposes, such as building maintenance, mission trips, or community outreach. Misattributing donations to the intended funds can result in a distorted financial picture. For instance, if funds intended for a new community center are mistakenly recorded as general offerings, the church might face difficulties in fulfilling its commitments to the community.
2. Lack of Proper Documentation
Accurate record-keeping is essential for both financial transparency and compliance with tax regulations. Without proper documentation, your church may find it challenging to provide donors with accurate contribution statements for tax purposes. This can lead to tax-related issues, frustrations, and potential audits with penalties.
3. Misclassification of Contributions
As any bookkeeper knows, donations come in multiple forms, including cash, checks, online transfers, and non-cash contributions. Bookkeepers may unintentionally misclassify these contributions, leading to errors in financial reporting. Non-cash donations, such as goods or services, must be properly valued and recorded. Each of these types of donations should be accurately categorized for transparency and compliance purposes.
4. Incomplete Donor Information
Bookkeepers may overlook collecting essential donor information, such as names, addresses, and contact details. Complete donor information is crucial for sending acknowledgment letters, contribution statements for tax purposes, and maintaining effective communication with the congregation.
5. Ignoring Donor Restrictions
Some donors may specify restrictions on how their contributions can or should be used. Bookkeepers must pay attention to these restrictions and ensure that funds are allocated according to the donor’s wishes. Overlooking these restrictions can lead to legal and ethical issues.
What’s your next step?
The potential impact of these recording errors extend beyond financial implications. Tax-related issues can arise when the church fails to accurately report donations, jeopardizing its tax-exempt status. This can also affect congregants who risk losing their eligibility for tax deductions of their contributions.
To mitigate these risks, churches should implement robust financial management systems and provide training for staff involved in donation recording. For example:
Clear guidelines on fund allocations
Proper documentation procedures
Valuation of non-cash donations
Regular audits and reviews of financial records
Open communication with board members, staff, and congregants
The most effective, efficient, and economic way to implement these changes is by partnering with Finch and their team of financial experts. At a small fraction of the cost of hiring an accountant or bookkeeper, Finch can handle your bookkeeping, budgeting, payroll, donor tracking, and even offer powerful strategies for moving forward.
Corey has 10 years of professional experience in financial planning and analysis. His previous areas of focus involved helping launch the Financial Services department of a large government contractor, where he developed the various reporting and budgeting systems.
Corey also actively manages Shorebird, a Registered Investment Advising firm that focuses on Financial Advising, Planning, and Investment Management for clients. He is also an adjunct finance professor at the University of California, Riverside for their graduate-level programs.
Corey received a B.A. in Business Administration at the California State University, San Bernardino; a Masters in Business Administration and a Masters in Finance from Indiana University’s Kelley School of Business.
Jonathan has more than 7 years of professional experience in corporate taxation and strategy with both public and private companies. His industry experience includes entertainment, church finances, medical device, and technology. Jonathan is also an adjunct professor at the University of California, Riverside (named a Best Business School by Princeton Review and named a Best Undergraduate Business School by Businessweek) and speaks at conferences on topics such as leadership and management.
Jonathan is a graduate of the University of California, Riverside and an MBA candidate at UCLA Anderson School of Management. He is a licensed Certified Public Accountant (CPA) in California.
Jonathan previously worked at PricewaterhouseCoopers, LLP where he specialized in corporate taxation.
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