A Guide to Internal Controls

Basic principles for keeping church finances safe.
Tyler Charles
posted 12/26/2010

The first thing every church leader needs to understand (and believe) is that their church is not immune to financial misconduct. The "We don't need to worry about that here" mentality is the reason why so many churches become victims of embezzlement. Even if your church isn't being victimized (that you know of), implementing a system of internal controls will ensure that your finances aren't at risk in the future.

Richard Hammar offers these examples of how embezzlement occurs in his book Pastor, Church & Law, Vol. 2: Church Administration and Property:

Example. A pastor had the sole authority to write checks on the church's checking account. He used church funds to pay for several personal expenses, amounting to thousands of dollars each year, until his actions were discovered.

Example. A church left its Sunday offering, along with the official count, in a safe in the church office until Monday. On Monday morning a church employee deposited the offering. The employee ignored the official counts, and deposited the offering less loose coins and currency (which she retained). The deposits were never checked against the offering counts.

To avoid these scenarios, here are a few basic principles for implementing internal controls:

A Matter of Good Stewardship

Even if you trust every leader at your church, you probably don't feel comfortable giving all of them a copy of your house key—or access to your bank account. Even if you trust them completely, there's no reason to provide such unlimited access to your possessions. In the same way, no one should be given unlimited access to the church's assets.

Internal controls are like checks and balances—or an accountability system. Not only do internal controls make your church's finances safer, but the knowledge that your church has a system in place will also serve as a deterrent—removing the temptation for a leader to embezzle or to "borrow" funds temporarily.

Focus on Good Practices

A system of internal control not only protects your church's assets, but it protects church leaders from unfounded accusations. If a church leader is wrongfully accused of embezzlement, he will be glad the church's internal controls have made such a charge impossible.

So not to offend anyone, emphasize that the changes have nothing to do with any individual. Rather, the changes are necessary for ensuring the financial security of the church in the present and future.

At first the new practices might seem inconvenient, but in the end, your leaders will be less susceptible to false accusations. And they will understand that you have the church's best interest at heart.

Write Policies Down

Documenting internal control policies is a vital step. This communicates that you are serious about implementing these practices, and it will encourage your leaders to abide by the new restrictions—even if they might seem tedious or unnecessary.

Do Annual Audits

In addition to implementing a system of checks and balances, and limiting access to accounts and cash supplies, churches need to consider finding a local CPA to perform an annual audit of their finances.

Audits spook people. However, churches can use audits to their advantage. An annual audit of the church's finances, though somewhat costly, can serve as a great deterrent for would-be embezzlers—and an incentive for all church leaders to be conscientious about keeping receipts, balancing accounts, and reconciling errors.
Emphasize Integrity

Churches that have never been victimized do not have the same incentive to overhaul their current system as ones that have been victimized. That doesn't mean the changes are any less necessary.

Internal controls are imperative for your church's financial security. If your church needs to revamp its system, don't overlook the spiritual element. Use this time to emphasize the need for honesty and integrity among your leaders—and throughout the church. Remember that embezzlement isn't just about stealing, but it's also a violation of the trust your church members placed in your leaders.

The fallout from financial misconduct is considerable, which is all the more reason to reduce the risk of embezzlement in your church. Establishing internal controls is the best way for churches to ensure their financial security.

Learn more from the downloadable resource "Internal Controls for Church Finances," available at ChurchSafety.com, and The Essential Guide to Church Finances, available at YourChurchResources.com