Internal Accounting Controls for Local Churches

Last updated January 1, 2010

Since the size of many of the local United Methodist Churches preclude segregating duties among several people, it is even more important to be clear on the specific responsibilities and timeliness of duties performed. This outline attempts to keep the local pastor out of most of the day-to-day accounting and also assumes there is a computer with an accounting program loaded and utilized. Where there is not a computer, accounting ledgers would replace them. Please adapt this to your specific congregation and your needs. The most important rule is that the person who does the check book reconciliation cannot be someone who signs checks.

Responsibilities

1. Pastor

   1. In consultation with the Finance Committee, determines person or persons who can authorize expenses (i.e. youth director, choir director, etc.).

   2. May co-signs checks.

   3. Initials and dates monthly bank statement and reconciliation showing that he/she viewed it and verifying that items like payroll taxes have been paid.

2. Church Treasurer (volunteer or paid)

   1. Process all checks, recording them in the appropriate accounting software program.

   2. Co-signs checks

   3. Process all payroll checks, Tax Form 941’s, W-2’s and other government records required in a timely fashion.

   4. Insure that computer files are backed up weekly, at a minimum monthly, and the back-ups are stored off premises.

   5. Prepares and presents the monthly finance report for Finance Committee.

   6. Supervise daily cash balances to insure sufficient funds are maintained.

   7. Maintains filing system and storage system for all financial records and banking records for easy retrieval.

   8. Prepares records for annual audit.

   9. Assists pastor in completing Statistical Tables for Annual Conference.

   10. Maintain historical data, and establish a rotation on destroying old financial records in accordance with government requirements (minimum of 5 years).

3. Financial Secretary / Administrative Assistant (volunteer or paid)

   1. Supervise the Counting Committee, which shall consist of at least 2 persons not related. After the contributions have been properly counted the Financial Secretary is responsible for recording the contributions to each families contribution record and to the general ledger and then depositing the funds in the bank in a timely fashion as established by the Finance Committee.

   2. Responsible to report to the Finance Committee each month the status of contributions to the church.

   3. Perform bank reconciliation each month in a timely fashion.

   4. Verify that all checks have been properly signed.

   5. Verify that the bank balance reconciles to the bookkeeping records.

   6. Verifies that the beginning balance equals the ending balance of the previous month both in the checking account and the general ledger.

   7. Signs and dates the reconciliation report.

   8. Gives the reconciliation report directly to the Pastor and reports any variances to the Pastor.

Processes

1. Check writing

   1. Ideally there should be 3 people who can sign checks in case of an emergency and cannot include the Financial Secretary.

   2. A limit should be set, such as $100, where any check in excess of that amount requires 2 signatures.

   3. If there is only 1 signature, the person signing the check must never be the person authorizing the expense. The Pastor is to designate persons who can authorize expenses.

   4. The check stub, copy of the check or the check number should be attached to the authorization and documentation (receipts, etc.) and filed for auditing purposes.

2. Deposits

   1. All checks and cash that are received should be processed in a timely fashion with all checks stamped, “For Deposit Only”.

   2. Records must be kept so that retrieval of the items deposited can be verified in case there is a dispute over an item deposited.

   3. Develop a numbering system to match deposit slip with computer records.

3. Annual Audit

   1. An independent auditor, not necessarily a CPA, and not related to anyone mentioned above, is to audit the records annually.

   2. The audit should include the bank accounts of all affiliated ministries of the local church.

   3. The audit must include verification that proper internal accounting controls are being maintained.

   4. If the person doing the audit is not a CPA, consult the Local Church Audit Guide and use Audit Report Financial Summary from GCF&A.

   5. Submit copies of the audit to the Pastor and the Chair of the Finance Committee and the District Superintendent.

The audit needs to be approved by the Finance Committee.