Church Accounting: Best Practices and Applied Internal Controls

Denise Hanson Diocese of Sioux Falls

Internal Control Objectives

Proper Authorization and Approval
Proper Documentation and Accurate Recording

Proper Physical Security Effective Detection

Major Risks
Failing to record all valid transactions or entering bogus transactions.
Inaccurately recording transactions. Permitting unauthorized removal of assets.

Types of Internal Control

Preventative
Detection Correction

Internal Control Checklist

General Controls
Annual budgets prepared All employees screened/background checks prior to hire and must take an annual vacation. An annual financial report filed to the Diocese and to the parishioners. Financial Statements submitted and reviewed by the pastor and Finance Council monthly or at least quarterly. Clear and thorough explanations and documentation are retained for all journal entries.

Computer Controls
All computer files must be backed up on a regular basis at minimum, weekly and should be stored off site. Passwords should be used to restrict usage of computer programs. They should never be shared or documented where others may find them. Passwords should be changed regularly and should have numbers, symbols and characters or a combination of all.

Bank Accounts
The Pastor, Administrator, and Associate Pastor should be the only authorized check signers on all accounts. If this is not feasible due to location then a finance or parish council member without conflicting duties may be an alternate signer. All parish organizations using the parish federal id should be on the parish balance sheet and the pastor should be an authorized signer on the bank account. The parish should receive financial statements from the organization at least once a year to update the balance sheet. Who reconciles the bank statement should NEVER be an authorized signer on the account.

Bank Reconciliation
Accounting for the sequence of all check numbers. Examining the paid checks for the date, name, endorsement, and comparing them to the cash disbursements journal. Comparing the detail of bank deposits to cash receipts records. Investigating other reconciling items (ex. Checks returned for insufficient funds). Following up on old outstanding checks.

Offertory Collection Counting

Cash count procedures should be in writing and furnished to each member of the count team. Parish employees and their families should not be involved in any way with the offertory collection. No fewer than 2 individuals who are unrelated to each other should count collections and members of count teams should be rotated. Count team members should take vacations for at least a month every year. The parish bookkeeper, pastor, associate pastor, administrator and members of the Parish Finance Council should not count the offertory collection. If adequate numbers of volunteers are not available to count the collection, consider having your bank count the funds. Individuals who participate in counting the collection should have a criminal background and a credit check in accordance with diocesan policy. Immediately after the mass is concluded, the offertory should be deposited in a safe under the control of at least 2 individuals who are not related to each other. The offertory should be counted in a secure location.

Offertory Collection Counting

The count team should immediately restrictively endorse all checks. The count should be entered on a summary sheet and signed by all count team members. The count sheet should be prepared in ink. The count team should prepare the deposit slip in duplicate. One copy of the deposit slip goes with the deposit into a tamper proof bag; the other deposit slip goes to the bookkeeper for recording the deposit. The offertory envelopes and listing of checks should be given to the individual responsible for maintaining the parish census. A member of the Parish Finance Council should compare the bank statement to the weekly count sheets. An annual statement should be sent to parishioners and donors. Statements should be preprinted with the following confirmation request: This statement is for your records. Please examine it carefully. If it does not agree with your records, please communicate directly to the Pastor. Someone other than the bookkeeper should post donor and parishioner records, if possible and donor records should be reconciled to the general ledger posting of offertory and offertory collection should be deposited separately from other receipts.

Cash Receipts
The person opening the mail should be independent of the accounting records. The parish should issue pre-numbered receipt to individuals who bring money to the parish office for fees/donations etc. Receipt should include date, name, amount and purpose of funds. The receipt should be signed by the employee/volunteer. All receipts should be accounted for in numeric order. The parish finance council and pastor should carefully review budget vs. actual and trends in CCD fees and other income amounts for unusual fluctuations. Refunds should require the approval of the pastor.

Cash Disbursements/A/P
All cash disbursements should be made by pre numbered checks with the exception of those paid by petty cash. Signature stamps should not be used The pastor should approve all vendor bills to be paid with his initials. Blank checks should never by signed. Parish should file all paid bills by vendor or by month by fiscal year. Voided checks should be marked VOID and retained. Check stock should be kept in a locked cabinet/safe and inventoried regularly on a monthly basis. Check signers should never have access to the accounting records. All supporting documents should be given to the check signer to review before signing the check. A check to Cash should be prohibited.

Payroll
Payroll information is strictly confidential and should be maintained in a limited-access, fireproof safe or file that is locked when unattended. Individuals preparing payroll checks should not sign the checks. Timesheets should be completed by each non-exempt employee documenting the number of hours worked and hours paid for vacation and sick leave. The employees supervisor should review and approve timesheets. The pastor should periodically review the payroll. Parish funds cannot be used for employee loans or payroll advances. The parish should establish procedures to monitor the obligation for unpaid vacation and sick leave. Employees should never be paid in cash. All payroll checks should be pre-numbered or ACH transfer. Overtime should be approved in advance.

Standard Chart of Accounts

Familiarity of accounts to priests when they move from parish to parish. Consolidation reports to the Diocese from parishes for annual reports. When creating, dont go to detailed with accounts, keep in a broad sense and use the levels to help with detail if needed. Leave enough open numbers to add in the area for future growth.

Questions ?