Could Your Ministry Use an Accountability Tune-Up?

by Michael Martin, ECFA Vice President

When it comes to vehicles, we all know periodic tune-ups are necessary to keep the engine running smoothly. If we’re not diligent with periodic maintenance, it can result in hundreds of dollars in costly repairs or needing to replace the vehicle altogether. Trust me—I’ve been there!

It can work the same way in leading Christ-centered ministries. Though solid financial accountability systems take extra effort, they are important tools we should use to avoid damage and keep the engine of ministry running smoothly.

While not an exhaustive list, start today with a brief tune-up by considering where your ministry stands when it comes to these five very practical and important areas:

  1. Effective budgeting. A budget is a plan for allocating available resources—it’s a strategic way to dispense money to areas of ministry. It includes setting goals, assigning priorities to them, developing a plan for achieving them, operating the plan, evaluating the results, and re-planning.

Developing a budget and getting it approved is just the beginning. After the budget has been approved, it must be administered and used. Has your organization adopted a budget? Have you considered different budgets for cash, operating, and capital purposes? Do you monitor actual income and expenses compared to the budget on a monthly or other periodic basis throughout the year?

  1. Form 990 transparency. Most nonprofits are required to file the Form 990 information return with the IRS each year. Many organizations do not realize this detailed reporting form on the ministry’s finances, governance, and other operations is available to donors anywhere around the world 24/7 through the Internet.

For many givers desiring to be good stewards, the Form 990—rather than your own website or a visit to the ministry—may be the first place they look when choosing whether or not to make a donation. Has your Form 990 been carefully prepared to be free of errors?  Are you using the Form 990 as an opportunity to connect with donors and not just report the information?

  1. Evaluating working classification.  Given the unique workforce needs of many ministries, a key legal liability area may be worker classification. More specifically, what criteria are you using to determine whether workers qualify as W-2 employees or 1099 independent contractors?

In a worker classification audit, if your ministry has been incorrectly classifying independent contractors that should have been employees, the bill could be thousands of dollars. Pay careful attention to this area, especially as the IRS and Department of Labor have been stepping up their oversight of worker classification in recent years.    

  1. Honoring restricted gifts. Many ministries benefit from restricted gifts from donors, but with this benefit comes great responsibility. A “restricted” gift is one given by the donor that is to be used within a certain time or for a specific purpose narrower than the general operating purposes of the ministry. A common example would be a specific program or building fund.

One of the surest ways for a ministry to lose trust with donors is to use restricted gifts for a purpose different than those intended by donors. Do you have proper accounting systems in place to track restricted gifts as they are received and expended? Is your board periodically updated on restricted fund balances and their related purposes?  

  1. Avoiding fraud. Fraud and misuse of a ministry’s resources can create sensational news—and not good news. Sadly, the result is the loss of credibility and a diminished witness of the Gospel in the sight of skeptics—not to mention the loss of effectiveness. While not all fraud can be eliminated, we should find a reasonable balance between preventive efforts and risks.

The details are beyond the scope of this article, but all ministries should conduct some type of annual internal audit or testing over key areas like bank reconciliations, digital transactions, and payroll taxes. For larger ministries, an external audit by an independent CPA should be the goal.  

Evaluating areas like these is a helpful starting point in strengthening the accountability of your ministry. For a wealth of other great resources, visit the Knowledge Center at ECFA.org.

 

 

 


This text is provided with the understanding that ECFA is not rendering legal, accounting, or other professional advice or service. Professional advice on specific issues should be sought from an accountant, lawyer, or other professional.

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