January 21, 2022
Financial Faux pas
We were inspired by our friends at NAMB and their post on 10 common church financial mistakes while creating this post. After you read their article, you can come back here for some financial funnies…we’ll wait.
Welcome back! We missed you. Okay, now let’s dive into some MM blooper reels. Please note, any personal information has been stripped away to protect the innocent. These are some common mistakes we see at MM and do not represent one person.
Financial Funnies:
- “But we just want to give our Pastor a gift. Why does he have to pay taxes on that money…that doesn’t make it a gift!”
- “Oh, that doesn’t go on her W-2, that was volunteer work our employee did, inside the same scope of work we pay her for…”
- “Backup documentation? I don’t want to look through all their crumpled receipts…they are trustworthy people.”
- “You mean we have to do this every month?!? Can’t we just reconcile our bank accounts every quarter?”
- “Our budget? Yes, we have one. It’s whatever we spent last year. Done!”
Payroll
“But we just want to give our Pastor a gift. Why does he have to pay taxes on that money…that doesn’t make it a gift!”
We understand it may not feel “gifty” to tax your pastor for his Christmas bonus, but it’s really not up to us, or you. The IRS states that any income going to an employee must show up as income and be correctly reported as such.
“Oh, that doesn’t go on her W-2, that was volunteer work our employee did, inside the same scope of work we pay her for…”
She is an employee, not a volunteer. End of story. Well, not exactly…read our Contractor vs. Employee post for more details.
Bonus Tips from our Staff:
- Have someone review the bank reconciliation who is not a check creator or check signer and does not have access to the General Ledger.
- Ministerial staff business expenses should be reviewed and approved by a person or committee who has authority over those staff positions, rather than just being approved/reviewed by the individual who requests and/or creates the check.
Client Services
“Backup documentation? I don’t want to look through all their crumpled receipts…they are trustworthy people.”
I’m sure you do trust them. I’m sure they are lovely people. But even those trustworthy lovely people have to turn receipts in for every reimbursement purchase, or there is no reimbursement check. Backup documentation covers everyone in the event of an audit. Besides, that’s exactly what a trustworthy & lovely person would do, turn in their crumply receipts!
Bonus Tips from our Staff:
- Have a separate person (preferably two people!) sign each check who are independent of the process (did not request the check or create the check, and will not receive the check.) Ideally, the pastor should not be an authorized signer.
- Have two unrelated people involved in the entire offering count. Additionally, the counting team should include enough members that they can serve on a rotating basis.
Accounting
“You mean we have to do this every month?!? Can’t we just reconcile our bank accounts every quarter?”
Yes, every month we reconcile the bank account. A LOT can happen in one month, can you imagine trying to remember what happened three months ago? Yeah, no one is that good. And no one should have to be. Reconciling your accounts each month is good accounting, proper financial management, and good stewardship.
“Our budget? Yes, we have one. It’s whatever we spent last year. Done!”
While that may be what you spent last year, that doesn’t take into account your projected growth, or upcoming projects, building maintenance, or events that have run their course. And a tiny little thing called projected giving. Being good stewards of your money is what we are all called to do, but ministries have an even bigger responsibility.
Bonus Tips from our Staff:
- We don’t recommend mixing donor restricted and board designated funds. Funds given by a donor for a specific purpose have a different legal obligation than funds set aside for something by the Church, so we recommend tracking them separately.
- Not considering all of the implications of a new project before starting. It’s great to see ministries exploring new methods of outreach and growth, but some projects may have peripheral effects on property tax, insurance coverage, unrelated business income, tax exempt status, etc. Feel free to reach out to your MM accountant for guidance from the beginning!
- Limit the number of bank accounts for your organization. Funds for different purposes/ministries can be tracked on the financial statements and typically don’t require a separate bank account. Each organization’s needs are different, but this is often an area that can be simplified.
Avoiding Financial Funnies
We hope you’ve enjoyed our financial funnies. Sometimes we all need to take a step back and learn to laugh at ourselves a little more. Mistakes will happen, and that’s what our team is for, to help you pick up the pieces. Just remember, it’s not too late to talk to our team and learn from the experts.
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