Internal Controls – Action Steps to Excellence

  • Prepare a church risk assessment, identifying risks and related controls to mitigate those risks. Identify who will update this on a regular basis.
  • Determine that adequate controls exist over operations, accounts, and financial statements. Review when conditions change or new situations arise.
  • Consider if there are appropriate controls in place to protect access to the physical and financial assets of the ministry.
  • Segregate the financial duties of custody, authorization, and record keeping. Include at least two unrelated people to reduce the temptation or perception of wrong doing.
  • Assess the procedures used for processing donations. Make sure that any one person cannot easily misdirect funds received at any point.
  • Review the different ministry activities that generate revenue and implement controls regarding the receipt, collection, and accounting of all monies.
  • Verify that controls over cash disbursements are adequate to document the proper usage of the ministry’s funds and to protect from possible misappropriation.
  • Establish good controls over payroll and consider how improper financial transactions could be recorded incorrectly in those accounts and go undetected.
  • Examine the various methods of electronic commerce used by the ministry to receive and to disburse funds, and consider if there are any weaknesses that would allow one person to misdirect those funds.
  • Overseers must monitor all financial processes to ensure appropriate controls exist. Do not treat this exercise as a one-time activity. Ministries that monitor internal controls typically find weaknesses that occur over time and can sometimes even detect fraud.

Protecting the financial assets of a ministry requires the same vigilance and care as guarding the good deposit of the gospel of Jesus Christ. May the Holy Spirit guide and empower your ministry to preserve both so that ministry flourishes for God’s glory.

By the Holy Spirit who dwells within us, guard the good deposit entrusted to you. 2 Timothy 1:14

BASIC INTERNAL CONTROLS CHECKLIST

CONTRIBUTIONS

__ Yes __No: Do two or more unrelated people collect the donations and maintain custody of the collection until it is secured or deposited?

__ Yes __No: Is more than one person required to access the safe where donations are stored?

__ Yes __No: Are checks stamped “For Deposit Only” or electronically scanned for deposit as soon as possible?

__ Yes __No: Do you ensure that a single individual is not involved in all three areas of counting donations, entering in the donor system, and recording in the accounting   system?

__ Yes __No: Is the donor system consistently reconciled to the accounting system?

__ Yes __No: Are online giving records consistently agreed to deposited amounts?

CASH DISBURSEMENTS

__ Yes __No: Is check stock maintained in a secure location?

__ Yes __No: Do you ensure that a single individual does not have access to check stock, check signing authority, and access to the accounting system?

__ Yes __No: Is supervisor approval required on all expense reports and corporate credit card charges?

__ Yes __No: Do check signers review supporting documentation before signing checks?

__ Yes __No: Are bank reconciliations performed monthly?

__ Yes __No: Are budget to actual amounts compared and significant fluctuations researched?

__ Yes __No: Do ministry leaders receive information for their budget areas to review?

PAYROLL

__ Yes __No: Are all timesheets approved by the employee and supervisor?

__ Yes __No: Is payroll approved by someone other than the preparer?

__ Yes __No: Is the final payroll report reviewed by the approver to verify no changes were made subsequent to approval?

__ Yes __No: Are quarterly 941 forms reconciled to the accounting records?

__ Yes __No: Is the top staff leader’s salary annually approved by the board using comparability data?

__ Yes __No: Are housing allowance criteria properly documented and amounts properly approved?

__ Yes __No: Is there documentation to support decisions on employee vs. independent contractor status and exempt (salaried) vs. non-exempt determinations?

Each of these questions should be answered “Yes.” A “No” answer indicates a possible weakness in internal controls. You should review possible solutions that can be implemented to enhance the controls in any weak areas.

Click here to read more from 10 Essentials of Ministry Internal Controls.


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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