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Internal Financial Controls

MCC Resource for Treasurers of Our Local Churches

Table of Contents

Internal Financial Controls and Risk Management .. 002 Separation of Duties 002 Physically Safeguarding Cash Receipts 002 Collections. 00 Counting 00 Recording Cas! Receipts.. 003 Disbursements 004 "bout C!eck #riting 005 "dditional Securit$ Concerns. 005 "udit.. 005 References and Resources . 006 Forms 007

MCC Resource for Treasurers of Our Local Churches

Internal Financial Controls and Risk Management Unfortunately, churches are not immune to the actions of unscrupulous people, even staff and volunteers. Indeed, because churches want to operate in an atmosphere of mutual trust, they can be especially vulnerable if they fail to establish sound internal financial controls. Internal financial controls are sets of ris mana!ement tools, procedures and protocols desi!ned to safe!uard the church"s assets, ensure accurate financial reportin! and efficient and effective use of funds. In addition, internal controls serve to protect staff and volunteers from false alle!ations of embe##lement or misuse of funds. Internal financial controls should be set forth in your church"s $inancial Operatin! %rocedures &$O%s' which describe how you will handle each of these issues. This will provide !uidance to staff, board, and volunteers and is especially important as turnover occurs and new people ta e on new roles. $inancial Operatin! %rocedures can be as detailed and comprehensive as the circumstances of your church re(uire. Three e)amples of $O%s are included at the end of this *oo let. Separation of uties

+eparation of duties not only plays a critical role in safe!uardin! church assets and protectin! staff and volunteers, but also reduces the wor load of the church Treasurer. ,ividin! duties amon! a number of people ensures that no one person has the opportunity for or !ives the appearance of improper conduct. ,uties are often separated by receivin! and disbursement functions. $or e)ample, the individual who receives and records contributions should not handle disbursements or prepare chec s. different way to thin of separation of duties is to separate recordin! and reportin! functions from cash handlin! functions. Lar!e churches often have paid staff . a financial secretary or administrative assistant, for e)ample . who posts contributions to individual !ivin! records, posts receipts to the /eneral Led!er, and performs the monthly ban reconciliation, but does not handle disbursements . this would typically fall to the Treasurer. +maller churches often do not have the resources for paid staff to handle this function and must rely on the Treasurer and volunteers, preferably in the form of an -ssistant Treasurer, who is assi!ned specific tas s, as set forth in the $O%"s.

Physically Safeguarding Cash Receipt The primary purpose of internal controls is to protect contributions from members and other contributors. This be!ins with appropriate procedures for collectin! and countin! funds durin! church services and other events, as well as any received by mail.

Collections. 00
MCC Resource for Treasurers of Our Local Churches

Collections, durin! the worship service or other events should always be in the custody of at least two un.related individuals. This means that the offerin! should be handed directly over to counters or placed in a secure, loc ed location until they can be retrieved by at least two people responsible for countin!. Chec s received by mail should li ewise be secured until they can be counted. Counting 00 Countin! should occur as soon after collection as possible and should be performed by two un. related individuals who are, ideally, part of a countin! committee that rotates responsibility fre(uently. Many churches also ta e the additional step of re(uirin! the presence of a *oard member durin! countin!. Countin! should occur in a secure, loc ed location, where there is no 0traffic1 or interruption. ,eposits should be made immediately followin! countin! whenever possible and should be made by two people. 2hen it is not possible to deposit receipts immediately, they should be secured, preferably in a safe or loc bo). Cash receipts should %&'&R be ept in an automobile or in someone"s home.

Recording Cash Receipts -ccurate accountin! of member contributions and other receipts be!ins with counters. Counters should3 Use a 4count sheet" to record individual contributions, the purpose of the contribution, chec number &or indicate cash' and to tally totals. Ma e sure the amount written on envelopes matches the amount inside the envelope. 5ndorse all chec s 4for deposit only to the church"s ban account. ,ouble.chec each other"s wor . 5nsure that the count sheet totals a!ree with the deposit slip. +i!n or initial the count sheet and the deposit slip ,eposit the collection intact6 that is, without 0ma in! chan!e1 or disbursin! cash to cover e)penditures. %rovide a copy of the count sheet and deposit slip to the person responsible for postin! contributions to individual !ivin! records and to the !eneral led!er.

Chec s received via mail should be endorsed !for deposit only1 to the church"s account and held in a secure location until they can be counted and recorded.
MCC Resource for Treasurers of Our Local Churches

Recordin! of receipts should be handled by a financial secretary, assistant treasurer or volunteer not involved in handlin! cash or ma in! disbursements. The -ssistant Treasurer should3 Receive a copy of the count sheet and deposit slip from counters. %ost totals to /eneral Led!er. 5nsure that totals on the count sheet and deposit slip match totals posted to /eneral Led!er. %ost contributions to individual !ivin! records. Retain count sheets and deposit slips in a secure file. %erform ban reconciliation each month.

,isbursements Church $O%"s should desi!nate who has authority to authori#e and approve disbursements, the process for obtainin! approval, and how and by whom they are recorded. -pproval of e)penditures is often dele!ated accordin! to the level of e)penditure. $or e)ample, lar!er e)penditures may re(uire approval by the *oard of ,irectors, while e)penditures below a certain level mi!ht be approved by the %astor or another staff member. - blan et approval is often in effect for bud!eted operational e)penses such as mort!a!e7rent, utilities and the li e. The tas of scrutini#in! disbursements for proper documentation and approvals and preparin! chec s for si!nature, and recordin! transactions often falls to the Treasurer or another desi!nated individual who does not handle receipt of funds. ,isbursements should3 *e documented via disbursement or chec re(uest form accompanied by ori!inal invoices and any other necessary documentation or 8ustification, as well as the si!nature of the approvin! official. *e paid by serially numbered chec s rather than cash6 -lways be si!ned by two authori#ed si!ners who carefully inspect the re(uest and documentation. *e promptly posted to the /eneral Led!er and should depict date, payee, amount, purpose, and chec number. Include notation of the chec number on the documentation.
MCC Resource for Treasurers of Our Local Churches

,ocumentation should be retained in secure file.

MCC Resource for Treasurers of Our Local Churches

"#out Chec$ %riting 005 Church $inancial Operatin! %rocedures should include specific protocol re!ardin! si!nature authority, chec writin!, and safe!uardin! chec s. +pecifically, these protocols should& Re(uire two si!natures on every chec . Identify who is authori#ed to si!n chec s. %rohibit the person who prepares the chec s from si!nin! chec s. 5nsure that ban si!nature cards are updated as si!nature authority chan!es. %rohibit si!nin! blan chec s. %rohibit chec s made to 0cash.1 %rovide for physically securin! #lan$' unused chec$s.

"dditional Security Concerns

Is the location where financial records are stored loc ed when not in use9 Is access to this location restricted to authori#ed individuals9 Is access to individual !ivin! records restricted to authori#ed individuals9 -re credit card receipts or other documents containin! sensitive financial information secured properly9

"udit.. 005

-n important part of ensurin! that your internal financial controls are followed and provide effective protection is an annual audit by an e)ternal auditor and7or internal audit committee. +ee -udits Resource for more information on audits.

MCC Resource for Treasurers of Our Local Churches

R&F&R&%C&S "%D R&S()RC&S

$ree Church -ccountin! http377www.freechurchaccountin!.com7internalcontrols.html 0,oes your church have appropriate internal control for cash receipts91 The :ational %ublic -ccountant, ,ale L. $lesher,$ebruary ;, <==<. http377www.allbusiness.com7accountin!7;>=?>@. ;.html 0$ifty Internal Control %ractices for 5very Church1 The Church /uide to Internal Controls, Church Law and Ta) Report, Richard A. Bar!o, ;CCD http377dowoca.or!7files7treasurer7InternalEControlE%racticesE.pdf -ccountin!Coach.com www.accountin!coach.com CO/pension.or! www.CO/pension.or! *rethren of Christ in :orth -merica http377www.bic.church.or!7 *oard +ource www.boardsource.or!. MCC %olicy Manual http://issuu.com/mccchurch/docs/sample_policy_manual_-us_edition

MCC Resource for Treasurers of Our Local Churches

F(RMS

MCC Resource for Treasurers of Our Local Churches

Sample Financial (perating *rocedures . 00+

Count S!eet Sample . 0,, C!eck Re-uest Form 0,

MCC Resource for Treasurers of Our Local Churches

Forms 00. S"M*/& ,0 FI%"%CI"/ (*&R"TI%1 *R(C&D)R&S Church finances shall be under the ultimate direction of the con!re!ation. The $inance Committee shall ma e monthly reports to the church. This Church shall be wholly supported by the voluntary tithes and offerin!s of members and friends of the church. This Church shall operate with a unified bud!et with one treasury. -ll funds received for any and all purposes must be accounted for by the $inance Committee. $inancial statements will be made available to members each month. The fiscal year shall be!in on Aanuary ; and end on ,ecember >;. The $inance Committee shall be!in the bud!et ma in! process, drawin! on the input of all the ministries and teams of the church. The %ersonnel Committee shall ma e recommendations concernin! paid employees of the church. The $inance Committee shall present the bud!et to the *oard of ,irectors and then to the church. Copies of the proposed bud!et shall be distributed to the church members at least one wee prior to its adoption durin! the ,ecember business meetin!. Once an e)penditure is approved by inclusion into the church bud!et, no other approval is needed F unless due to the church bein! in a ti!ht economy, the $inance Committee shall announce a need for prior approval of e)penses. ,esi!nated funds must be approved by the church. :o one may establish a Gdesi!nated fundG simply by the !ivin!. Re(uests for creatin! a new fund must first be submitted to the $inance Committee. If the proffered !ift is outside the scope of the current bud!et or ministry of the church, they shall brin! recommendations concernin! the offer to the con!re!ation for approval. :o tan!ible property may be received by the church without first bein! accepted by the $inance Committee. +eparate persons shall be responsible for havin! custody of church offerin!s. These persons will consist of money counters and a depositor. - minimum of three church members is re(uired to count church offerin!s at any time. There will be a re(uirement of two si!natories on all chec s. There will be no staff members participatin! in the collectin!, countin! or depositin! of church offerin!s. -ll re(uests for reimbursements will be submitted on a GRe(uest for +undry ,isbursementG form which will be submitted to the treasurer with the proper si!nature approvals.

MCC Resource for Treasurers of Our Local Churches

S"M*/& 20 FI%"%CI"/ (*&R"TI%1 *R(C&D)R&S -. -ll financial accounts of EEEEEEEEE MCC will have all members of the *oard of ,irectors as si!natories. In the event the Treasurer performs the accountin! functions of the church, the Treasurer shall not be a si!natory on the account. *. The countin! of all offerin!s will be done by two persons, as directed by the *oard of ,irectors, and the offerin!s shall be deposited into the appropriate church ban account. C. Cash offerin!s shall not be used to cash personal chec s. ,. -ll re(uests for fundin! outside of the bud!et with the e)ception of desi!nated !ifts shall be in writin! and shall include a written detailed estimate. The fundin! is sub8ect to *oard approval and the *oard shall determine the source account for the fundin!. 5. -n audit of the church"s finances shall be accomplished annually. +uch an audit shall be conducted by an independent third party selected by the *oard of ,irectors. $. - bud!et shall be prepared by the $inance Committee and presented to the *oard of ,irectors at a re!ular Con!re!ational Meetin! annually and shall be approved by a simple ma8ority. The bud!et may be chan!ed as re(uired at any Con!re!ational Meetin!.

S"M*/& 0 FI%"%CI"/ (*&R"TI%1 *R(C&D)R&S ;. -uthori#ation for si!natures necessary on contracts, chec s, and orders for payment, receipt or deposit or withdrawal of money, and access to securities of EEE MCC shall be provided by resolution of the *oard. <. -ny individual authori#ed to purchase !oods and7or services for the EEE MCC shall follow the procedures set forth in these policies and the Internal Control Procedures Manual. >. The $inance Committee shall be responsible for reviewin! and recommendin! an annual operatin! and a capital bud!et to the *oard for review and sendin! to the Con!re!ational Meetin!. ?. The Con!re!ation shall be responsible for approvin! the annual operatin! and capital bud!ets. D. :o e)pense shall be incurred in e)cess of the total bud!etary appropriations without prior approval of the *oard.

MCC Resource for Treasurers of Our Local Churches

C()%T S2&&T S"M*/&

MCC Resource for Treasurers of Our Local Churches

C2&C3 R&4)&ST F(RM 5S"M*/&6

*a$able to0 H:ame of the %erson or Bendor to be paidI "ddress0 H+treet or %.O. *o) to which the chec will be mailed I -ddress <3 Hif needed to complete the addressI Cit$7State78ip0 HCity, +tate, Jip code of reciepentI Telep!one %umber3 HBendor %hone :umberI Fa9 %umber3 HBendor $a) :umberI

"ccount %umber3 HThe account number !iven to the church as a corporate identifierI "mount0 H-mount due to the vendorI Due Date3 K,ate payment is due to the recipientL

Re-uested b$3

H:ame of the person ma in! the re(uestI ,ate3 HToday"s dateI

Contact %umber3 H %hone number where re(ustor can be reached to answer (uestionsI Reason for Re-uest3H+tate why this purchase madeI

"ccounting7:udget /ine Item %umber3 HThe church"s -ccountin! or *ud!et numberI

"ppro;ed b$3 H :ame of %erson -pprovin! %aymentI Declined due to3 HIf payment is declined, reason for the declineI Bendor :umber3 H If your church assi!ns vendor number, record it here for the person inputtin! the chec informaiton into the -ccountin! systemI Signature0 H+i!nature of the person approvin! the issuance of a chec I C!eck %umber0 HRecord the chec number hereI C!eck Date3 HRecord the date the chec is issuedI In;oice5s6 must accompan$ a completed c!eck re-uest form.

MCC Resource for Treasurers of Our Local Churches