When it comes to church finances, diligent bookkeeping is the backbone of good stewardship and fiscal responsibility. Many church bookkeepers excel at managing day-to-day record-keeping and maintaining the financial ledger with precision. However, in the busyness of these regular tasks, there also exists a set of strategic church accounting practices that, if overlooked, could jeopardize the overall financial health of the church.
Join us as we review five often-neglected aspects of church accounting—areas that, when addressed, contribute significantly to strengthening the financial foundation of a congregation. We’ll also look at practical ways to ensure that these processes are implemented.
Top 5 Church Accounting Pitfalls to Avoid
1. Overlooking Internal Controls
Mistake: A lack of internal controls, leading to potential misappropriation of funds. Solution: Establish and enforce internal control policies to safeguard church assets. This includes segmentation of duties, regular audits, and approval processes.
Many churches have learned the hard way just how crucial internal controls are for maintaining the integrity of their financial operations. Misappropriation of funds, whether intentional or simply due to inadequate (or non-existent) controls, can have severe consequences for your organization’s financial health and reputation.
Setting up internal controls such as having team oversight of finances, regular pulling reports, auditing accounts, and reporting the state of finances to the board enhance security and prevent financial misconduct. It also demonstrates a commitment to transparency and accountability, which can build trust within the congregation
2. Lack of Financial Transparency
Mistake: Withholding financial information from church members. Solution: Foster an atmosphere of transparency by regularly sharing financial reports and updates with the congregation increases trust and accountability.
For some pastors and leaders, the process of being transparent in financial matters can be scary and challenging. However, being willing to share expenses, income, and budget information strengthens the relationship between the church leadership and the congregation. This open communication also ensures that members are informed and feel ownership of the financial well-being of the church.
3. Inadequate Record-keeping
Mistake: Neglecting to keep accurate and up-to-date financial records. Solution: Launch a robust accounting system and maintain organized records. This ensures accurate financial reporting and compliance with regulations.
Every accountant knows that proper record-keeping is fundamental to sound financial management. This is why it’s crucial for churches to maintain accurate records. This can help avoid errors, streamline financial processes, and facilitate compliance with legal and regulatory requirements.
Effective cash flow management is crucial, especially during a recession. However, it’s one thing to know what needs to be done, and another to actually do it. Addressing cash flow mistakes can help churches avoid liquidity issues, plan for necessary expenses, and ensure financial stability in challenging times.
5. Noncompliance with Tax Regulations
Mistake: Ignoring local, state, and federal tax regulations or failing to stay updated on changes. Solution: Seek professional advice from financial experts like Finch to ensure compliance with tax laws. File required reports on time and take advantage of available tax exemptions for religious organizations.
Every year, churches around the U.S. risk losing their nonprofit status and face legal issues for failing to comply with tax regulations. Professional church accountants can help your church stay informed about tax laws, meet those requirements, and maximize available tax exemptions.
We hope that this information is valuable and helpful for addressing each of these five additional mistakes. Taking steps to implement these changes can help your church enhance their financial management practices, promote accountability, and navigate the challenges posed by economic downturns.
What’s your next step?
Many pastors and church leaders struggle with bookkeeping tasks, and figuring out ways to improve their finances and build for the future seem out of reach.
Finch offers the best bookkeeping services for churches, along with detailed accounting, payroll, and budgeting reports—all at a fraction of the costs of hiring an in-house church accountant.
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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